Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — PRICES AND CONSUMER PROTECTION

Petrol Prices

Mr. Silvester: asked the Secretary of State for Prices and Consumer Protection what arrangements are being made for the alteration of petrol pump prices following the reduction of excise duty in August.

The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan): Under the Price Code, the reduction of excise duty on 8th August has to be passed on in full in lower price. Any complaints of dealers taking unfair advantage of the motoring public will be carefully investigated. The Petrol Prices (Display) Order, which comes into effect on 12th August, will also protect

motorists' interests by requiring prices to be clearly displayed.

Mr. Silvester: How does the Under-Secretary propose to overcome the danger of some petrol pumps running dry at the end of next week because small garages will not be prepared to hold supplies at the higher rate of duty in order to sell at the low rate?

Mr. Maclennan: It was with that possible problem in mind that an amendment to the Finance Bill was passed postponing by three days the implementation of the reduction in excise duty—which I am sure the hon. Member will welcome —to a period after the holiday.

Mrs. Sally Oppenheim: Is the Under-Secretary aware that, following the conversion of petrol pumps to litres, confusion arose precisely as I predicted when the Government first embarked on their metrication programme? Does he agree that that confusion is likely to increase as the Government are not doing sufficient to protect consumers in this respect?

Mr. Maclennan: The only confusion appears to be in the mind of the hon. Lady. She does her best to obscure the clear on every possible occasion.

Mr. Hooson: Can the Under-Secretary confirm that the arrangements are no different from those which apply when there is a rise in the cost of petrol? Is he satisfied that there is no reason for any shortage at this time?

Mr. Maclennan: I believe that the postponement will help to obviate that possibility.

Mr. Ioan Evans: asked the Secretary of State for Prices and Consumer Protection if he will make a further statement about petrol price display.

The Minister of State, Department of Prices and Consumer Protection (Mr. John Fraser): The Petrol Prices (Display) Order 1977 was laid before the House on 30th June and will come into operation on 12th August 1977. We shall, of course, watch to see the effects of the order.

Mr. Evans: Will my hon. Friend take a closer look at the way in which the order is to operate? At the moment there is a jungle. There is complete confusion on the forecourts of petrol stations, with ridiculous prices such as 84.9p per gallon. How can one pay ·9p? is not some protection needed in this regard?

Mr. Fraser: The order will not only cover displays outside forecourts but will require the display of information on or near the pumps themselves. As to the percentage point of a penny, when we made the Petrol Prices (Display) Order we had no powers to ban petrol price displays giving fractions of a penny, because the power is contained in the Price Commission Act, but we shall watch the operation of the order carefully.

Mr. Dykes: When the order starts, it will be quite difficult for consumers to see prices clearly displayed on the new modern pumps, particularly the electronic ones, and this will undo for the consumer the good effects of the fall in petrol prices. Will the Minister pay particular attention to this?

Mr. Fraser: I have already paid particular attention to it. Electronic pumps will have to show the maximum price per gallon being charged to the consumer as well as give an indication on the pricing indicator on the pump.

Vegetables

Mr. John Ellis: asked the Secretary of State for Prices and Consumer Protection if he will refer to the Price Commission the level of prices charged by retailers for fresh vegetables and salad ingredients.

Mr. Maclennan: As part of its standing reference on fresh food prices, the Price Commission already monitors the prices and distributors' margins of potatoes and other vegetables the prices of which were forced up by the effects of last summer's drought. This exercise will continue until it is clear that supplies have returned to normal and that prices reflect this.

Mr. Ellis: Does my hon. Friend agree that somebody is not getting to the truth in this matter? Is he aware that until recently farmers were receiving 1p or 2p for lettuces which were being sold at between 10p and 13p in the shops? Does he agree that daylight robbery is taking place and that neither the growers nor the consumers are benefiting? Will he ask the Price Commission to sort this out? Is he aware that when there is a drought it is given as the reason for price increases but that when we have a glut prices do not come down? That is not acceptable.

Mr. Maclennan: It would be unacceptable if prices did not come down when producers' prices were falling, but the price of lettuces today is 9p or 10p cheaper than it was two months ago.

Mr. Ellis: So it should be.

Mr. Maclennan: It takes time fully to analyse distributors' margins. I believe that the Price Commission's standing reference will cover the anxieties raised by my hon. Friend.

Mr. Ridsdale: If the Under-Secretary wishes to help concerning the retailing of lettuces, he should look at the Covent Garden Market Authority. Does he think it fair that the entrance charge to Covent Garden has gone up from 20p to £1—an increase of 500 per cent.—in the last few months? Does not that prove that the Government do not care about distribution costs?

Mr. Maclennan: If the hon. Member has a serious point to make, I shall consider it.

Mrs. Dunwoody: Is my hon. Friend aware that the wholesaling of fruit and vegetables escapes weights and measures legislation? Does he not agree that that is bizarre? Is he aware that today I have sent him a list which makes it


clear that there are considerable discrepancies? Does he accept that if he does not instigate a full inquiry he will be failing in his duty?

Mr. Maclennan: I shall look carefully at the figures which my hon. Friend has sent to me. I hope she will accept that the Price Commission is already seized of the question of distributors' margins. As the Price Commission's report shows, there is no evidence to suggest that there is profiteering of the kind which she has suggested.

Mr. Ellis: That report is two months old.

Mr. Maclennan: My hon. Friend the Member for Brigg and Scunthorpe (Mr. Ellis) has rightly drawn attention to the fact that the Price Commission's report relates to a situation which is some weeks out of date. My hon. Friends will be aware that our powers under the new legislation will be considerably greater than they are at present. I am proposing to discuss with the new Price Commission whether it is possible to improve and speed up the mechanism for examining distributors' margins.

Mr. Gwilym Roberts: Does not my hon. Friend agree that the real need in this matter is for an investigation into the whole mechanism of sale? There are innumerable stages before the produce reaches the customer. The whole thing is a racket, with people cashing in at every stage.

Mr. Maclennan: I am not sure that my hon. Friend is right in saying that what is needed is an investigation. I believe that what is needed is power to act on a recommendation from the Price Commission. That is why the House has passed the Price Commission Act. I believe that investigations carried out under these standing references may in future lead to more results than is the case in the present situation.

Consumer Complaints

Mr. Loyden: asked the Secretary of State for Prices and Consumer Protection which commercial activities have led to the greatest number of complaints at consumer advice centres in the last 12 months.

Mr. John Fraser: The information available does not separately indentify consumer complaints made to consumer advice centres. Details of complaints received by a number of advice services, including these centres, are provided in the latest annual report of the Director General of Fair Trading which was laid before the House on 10th March. The greatest number of complaints were about motor vehicles, followed by clothing and furniture.

Mr. Loyden: In the light of those figures, what does my hon. Friend propose to do about the appalling situation in which there is such a high level of consumer complaints about cars in particular?

Mr. Fraser: The Director General has brought about a voluntary code of practice, but I am afraid that many car dealers, particularly second-hand dealers, do not subscribe to it. I have made some suggestions about a possible system of licensing or regulation of those carrying on trade like this in order that we may secure better protection for the public. In the case of the other complaints, the use of our existing labelling requirements and the use of regulations made under them may be a useful avenue.

Retail Price Index

Mr. Wyn Roberts: asked the Secretary of State for Prices and Consumer Protection what is the current percentage rate of increase in the retail price index.

The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): The latest figure available is the increase for June, published on 14th July. It was 1 per cent., well in line with the forecast that the rate of inflation will begin to decline in the autumn.

Mr. Roberts: Is it not a fact that year upon year to last month the retail price index has gone up by 17·7 per cent.? Is not that deplorable figure higher than in any other industrialised country? Is it not the case that the true figure for inflation over the past year would be still some points higher, nearer the wholesale price index increase of 20·9 per cent.?

Mr. Hattersley: It is a fact that year on year the index went up by 17·7 per cent. It is not a fact that the true rate of inflation is even higher. That selective figure


is normally offered by the Opposition on a different Question and I have no doubt that the hon. Member for Gloucester (Mrs. Oppenheim) will want to make her prejudiced point on Question No. 7.

Mr. Molloy: Is it not a fact that one of the longest sittings of this House was because of the attitude of the Opposition in opposing any form of price control? Is it not therefore deplorable that we should have such two-faced Questions from the Opposition when they are not in favour of any form of price control? Does not my right hon. Friend agree that he has to be successful in his policy because it has such a vital contribution to make to the next round of wage bargaining?

Mr. Hattersley: It is widely understood in the country that the Opposition fought the Price Commission Bill in this House and subsequently in the House of Lords for so long because of their determination to have no form of price control at all. I noticed the references in every newspaper to the cheers which went up from the Opposition on the second day of the Report stage in this House when the prospect was mooted that the Bill might be lost. If we are to have a prosperous economy in the years to come, we need a moderated price prospect, just as we need a moderated wages prospect. These two factors influence each other, and we must therefore play our full part in bringing that situation about.

Mrs. Sally Oppenheim: Does not the right hon. Gentleman agree that, despite the social contract, subsidies, the Price Commission Act and other various and assorted gimmicks, even if single-figure inflation is reached next year prices will have risen by 100 per cent. under this Government? That is a matter for the deepest shame and not for the kind of boasting that he has brought to the House today.

Mr. Hattersley: I am grateful to have got the supplementary question on Question No. 7 earlier. The hon. Lady must understand that, in common with every other industrialised country, the United Kingdom suffered the major disadvantage of an oil price increase two years ago, with a number of economic disadvantages flowing from that. In the last two years we have made substantial strides in improving the economy. After all the

depressing things that the hon. Lady has said about what has happened over the last two years, I look forward to seeing her at that Box after Christmas rejoicing with me about the fall in the rate of inflation which will have come about.

Mr. Edwin Wainwright: asked the Secretary of State for Prices and Consumer Protection what has been the percentage increase in the cost of living during the past 12 months at the latest available date; what were the figures on the corresponding date for the two previous years; and what action he is taking to bring the future percentage down.

Mr. Peter Bottomley: asked the Secretary of State for Prices and Consumer Protection whether he will give the three-monthly increase in the retail price index expressed at an annual rate.

Mr. Hattersley: The percentage increase in the cost of living over the 12 months to June 1977, as measured by the retail price index, was 17·7 per cent. In the 12 months to June 1975 and June 1976 it was 26.·1 and 13·8 per cent. respectively. The most recent three-monthly increase is 4·4 per cent. to June 1977. For what it is worth, this gives a figure of 19 per cent. on an annualised basis. As I have already said, the rate of inflation is expected to fall substantially in the months ahead, as foreshadowed in the Chancellor's forecasts. The measures announced by the Chancellor on 15th July and the Price Commission Act will reinforce this expected deceleration.

Mr. Wainwright: I thank my right hon. Friend for giving so much information. Is he satisfied that he has sufficient powers further to reduce the cost of living? Is it not true that he can prevent prices from increasing in certain circumstances but that he cannot compel wholesalers and retailers to reduce them? Will he do something about the cost of frozen chips? Is he aware that when potatoes cost £200 a ton the cost of frozen chips went up correspondingly but that since the price of potatoes has come down to £100 a ton and less the price of frozen chips has remained at the higher figure?

Mr. Hattersley: On the general point, I am satisfied that the new powers in the Price Commission Act which come into


force on 1st August will be a substantial help in the fight that we are trying to wage, and in certain circumstances we expect a reduction in prices. A general reference from me about prices in a whole sector could result in prices over a wide range of products being reduced if the Price Commission so recommended.
On the more specific question, I am advised that paragraph 25 of the existing Price Code insists that where there is a net reduction in costs prices should be so constructed as to reflect that reduction. Frozen chips are a matter of great concern and are the subject of many letters to my Department. My officials are discussing with the Price Commission whether the reduction in cost is being adequately reflected in the price to the consumer.

Mr. Bottomley: Will the right hon. Gentleman confirm that there is not much that the Government can do further to reduce prices, because they have not been coming down at all over the past three years? Secondly, can he tell the House why other countries do not appear to have suffered as much as we have from rising prices, and whether it is the Government's aim to reduce our level of price increases to that of our international competitors?

Mr. Hattersley: The power to reduce specific prices exists in the Price Commission Act. Our inflation rate has been at a high level compared with our industrial competitors for a variety of reasons. We have been more vulnerable to outside pressures and to pressure on sterling than have most other European and North Atlantic countries. However, thanks to the efforts of the Government, sterling is now stable, and that is why there is a better price prospect for 1978.

Mr. Lipton: How does my right hon. Friend work out tie percentage increase in the cost of living. in which the price of beer is an ingredient, when no two pubs charge the same price and when the cost of a pint of beer varies enormously, even in one street?

Mr. Hattersley: The calculation of the RPI is a technical matter. I should be ruled out of order if I were to try to describe it in the next 20 minutes, but it is statistically accurate. It is not a perfect pattern of spending for every family, but it is an indication of how prices have risen in the recent past.

Mr. Neubert: With inflation-proofed pensions, with an index-linked savings scheme, with index-linked welfare benefits and now with index-linked personal tax allowances, does not the right hon. Gentleman get the feeling that he is fighting a losing battle against inflation? Is not there a danger that increasing income without controlling wage costs and import prices is inflationary?

Mr. Hattersley: No, Sir. With the monthly increase in the index at 1 per cent. or less for six out of eight months, I sometimes get the feeling that we are winning the battle against inflation.

Mr. Blaker: asked the Secretary of State for Prices and Consumer Protection what increase in the retail price index over the last 12 months has resulted from the common agricultural policy of the European Community.

Mr. Hattersley: Roughly one-half of 1 per cent.

Mr. Blaker: Will the right hon. Gentleman give that figure the maximum possible publicity and inform the Secretary of State for Agriculture, Fisheries and Food, who does not seem to have got the message?

Mr. Hattersley: He is the Minister of Agriculture, Fisheries and Food, and he was the first to quote statistics very similar to those that I have given. Not only has my right hon. Friend got the message, but he has helped to bring about this situation. It is because of the way in which he has negotiated in Brussels that prices in this country have been kept down in the way that they have.

Mr. Frank Allaun: As so many essential foods can be bought more cheaply outside the Common Market, the figure that my right hon. Friend has given will be treated with considerable scepticism by most housewives.

Mr. Hattersley: It will be treated with disbelief by those who do not want to believe it. I think that my hon. Friend needs to provide much more convincing evidence than has been provided so far that substantial savings in food prices are to be achieved by buying cheap food from outside the Community. The evidence is that if the cheap food exists at all it does


not exist in quantities that would radically change the British spending picture.

Mr. Hooson: Does the right hon. Gentleman agree that the prices of animal feeding stuffs are coming down for the first time for many months, and does he expect that trend to continue?

Mr. Hattersley: I need notice of that question to be able to answer it.

Mr. Biffen: So that we may assess the significance of the ½ per cent. to which the right hon. Gentleman referred, will he circulate in the Official Report what prices he thinks would have been paid for temperate foodstuffs which are important to this country if Britain had been out-side the EEC for the period under review?

Mr. Hattersley: I do not think that it is possible with any statistical legitimacy to describe what prices I think might have been paid in different circumstances. What I shall do, as I have done already for some sceptics, is to describe publicly the statistical method that brought about this figure. I cannot remember whether I described it in individual letters or in the Official Report, but I shall do so in the Official Report in future if I have not done it already.

Mr. Newens: Does my right hon. Friend agree that if the green pound had been revalued along the lines suggested by Conservative Members the rise in the cost of living would have been considerably greater than has been the case? Is it not therefore hypocritical of right hon. and hon. Members opposite to criticise what has been done by the Government in this respect?

Mr. Hattersley: Of course. Had the green pound been changed in value to represent the normal value of the pound against the dollar, the picutre would have been substantially different. That is why am sure we are right to insist that the only possible devaluation is one that is matched by other benefits to the British consumer and why the attitude of right hon. and hon. Gentlemen opposite differs from price debates to common agricultural policy debates.

Mr. Marten: Does the compilation by the statistical department of the figure given by the right hon. Gentlemen include such things as the cost of all the

intervention stores, the food thrown away through failing to meet the size set by the Brussels bureaucracy, an apportionment of the overheads of the Common Market bureaucracy and the cost of not buying cheaper food where it exists outside the Market? Is all that included?

Mr. Hattersley: Of course.

Motorway Service Stations

Mr. Arnold Shaw: asked the Secretary of State for Prices and Consumer Protection whether he will institute an inquiry into the prices charged by motorway service stations.

Mr. Maclennan: I shall consider this.

Mr. Shaw: Is not my hon. Friend aware that this scandal has been going on over the years and that it is about time something was done about it? Does not he agree that, in the virtual monopoly situation that appertains at present, the people who need this protection are those who use these service stations? Should he eventually come round to the idea of an investigation, will he look into prices and conditions in the restaurants and cafeterias as well as at the petrol pumps? Will he also consult the Secretary of State for Transport on the question of the concessions to the various firms on the motorways?

Mr. Maclennan: It is with those points in mind that I am considering seriously and urgently the possibility of a reference to the Price Commission.

Mr. Emery: Does the hon. Gentleman realise that after the major oil compaines had reduced petrol prices by 3p, sometimes as much as a fortnight afterwards certain service stations, using their monopoly position, had still not reduced their prices to the consumer? If there is to be a monopoly, the Government must control it. I would prefer to see more competition. In the circumstances, will the hon. Gentleman consider whether more than one supplier should be granted a licence when the applications for motorway petrol licences are made? After all, six or seven different petrols are being sold and more than one supplier should be licensed.

Mr. Maclennan: The method of granting licences is for my right hon.


Friend the Secretary of State for Transport, but I take the point about the importance and desirability of competition. That is likewise a factor that we have in mind.

Mr. Pardoe: Will the hon. Gentleman change the tense of his answer from "shall consider" to "am considering"? Is it not the case that his right hon. Friend wrote to me last week saying that he was already considering it? Does not the hon. Gentleman agree that all the factors of scale and distribution costs are in favour of a lower petrol price on motorways than in small, more widely-flung stations? How many companies are involved in providing these services? What is the duration of the franchise in each case, and how often are the franchises renewed?

Mr. Maclennan: Perhaps I can amend my answer to say that the possibility of an inquiry is under consideration. The hon. Gentleman has reflected the anxiety of both sides of the House about this matter, and it would be into precisely the sort of points he has raised that any inquiry carried out by the Price Commission would focus.

Mr. Ioan Evans: As well as instituting an inquiry, should not my hon. Friend consider giving a warning to motorists that they can expect this sort of thing on motorways? For example, many people travelling on motorways at holiday times are not used to motorway prices. Should not motorists be recommended to fill up before they get on to a motorway? Would not this contribute to a fall in prices on motorways?

Mr. Maclennan: I am sure that my hon. Friend's advice will be widely noted.

Hallmarking

Mr. Hooson: asked the Secretary of State for Prices and Consumer Protection if he will instruct the assay offices to hallmark articles submitted for hall-marking in the position requested by the sponsors rather than at the discretion of the assay offices.

Mr. John Fraser: The assay offices are autonomous bodies and I have no powers to issue such an instruction. I understand that the assay offices try to meet sponsored requests for the placing of hall-

marks, but there are sometimes practical or technical reasons why this cannot be done. Anyone who has a specific complaint against any assay office may bring it to the attention of the British Hall-marking Council, which has a statutory duty to supervise the activities of the offices.

Mr. Hooson: Is the hon. Gentleman aware that individual craftsmen sometimes have difficulty with assay offices? Is it not necessary to distinguish between the work load provided by craftsmen and the industrial work load? Is he aware that the three days' delay at the assay offices in 1975 was aceptable but that it is now 18 days for silver, and that when marking individual craft-made items great difficulties are encountered?

Mr. Fraser: I understand the difficulties of marking. What I think I might do to help the hon. and learned Gentleman is to ask the Chairman of the Hallmarking Council to see me to discuss this and other problems raised in hon. Members' correspondence.

Mr. Emery: Does the hon. Gentleman realise that when the new legislation was going through the House as a Private Members' Bill the assay offices gave an assurance that they would do everything possible to co-operate in hallmarking in the future? However, because of the Jubilee hallmarking there has been a major demand, which has been greater than the assay offices could possibly have expected.

Mr. Fraser: I understand that there has been a demand due to the Jubilee, but perhaps that that might have been anticipated. Secondly, I understand that in the placing of hallmarks the assay offices have to take into account the preventing of fraud, not by the producer but subsequent fraud, and that is one consideration in placing the hallmark.

Food Prices

Mr. Durant: asked the Secretary of State for Prices and Consumer Protection whether he will give the latest recorded percentage increase in food prices since February 1974.

Mr. Maclennan: Excluding seasonal foods, the retail food index has increased by 86 per cent. from February 1974 to June 1977, or 20·5 per cent. expressed


at an annual rate. Over the same period, the figure including seasonal food is 92 per cent. or 21·6 per cent. at an annual rate.

Mr. Durant: Does the hon. Gentleman agree that these are appalling figures for the British housewife? Will he admit that part of the reason for them is the low sterling rate that we get, especially when dealing with those countries from which we purchase a good deal of our food supplies? Does he agree that this is entirely due to the Government's economic policies and is he aware that it is no good the Secretary of State saying that sterling is doing much better when it is at such an appallingly low rate?

Mr. Maclennan: The stabilisation of sterling is a factor that will lead to a deceleration in the rate of increase of food prices. The latest picture is quite encouraging. The retail food index increased by 4·4 per cent. in the three months up to June, and that is a marked improvement compared with the 5·6 per cent. increase in the three previous months. In addition, none of this improvement takes account of recent substantial falls in the price of fresh fruit and vegetables.

Mr. George Rodgers: Is my hon. Friend aware that the increase in food prices caused by our membership of the Common Market is cumulative and that the price increases referred to earlier have been superimposed on other and deliberate price increases? Does he agree that it is inevitable that prices will continue to increase?

Mr. Maclennan: It is inevitable that prices will continue to increase, but not at the rate that they have increased during the past year, when they were severely adversely affected first by drought, the effects of which have virtually worked through, and then by the fall in the value of sterling last autumn.

Mr. Adley: As the Question refers to February 1974, does the hon. Gentleman remember fighting the General Election on the slogan that the Labour Government and the social contract would reduce inflation? Did the social contract fail, or was the Labour Party misleading people?

Mr. Maclennan: The Labour Party fought that General Election on policies that included the introduction of food

subsidies, which the Opposition have consistently opposed and continue to oppose.

Mr. R. C. Mitchell: For the purposes of comparison, can my hon. Friend tell us how much of the increase since February 1974 has been due to our membership of the EEC and how much to the fall in the value of the pound?

Mr. Maclennan: As my right hon. Friend has already said, the further we get from the date of entry, the more difficult it becomes to calculate what prices would be if we were not members of the EEC. However, it is possible to calculate the additional increase in prices that is directly attributable to CAP adjustments and changes this year. That is the figure,·5 per cent., to which my right hon. Friend referred earlier.

Mr. van Straubenzee: asked the Secretary of State for Prices and Consumer Protection whether he remains satisfied with the machinery available to his Department for monitoring the level of food prices.

Mr. Maclennan: I am satisfied that the retail food index provides an accurate and up-to-date indicator of movements in food prices. Where closer scrutiny appears necessary, the Price Commission is asked to carry out investigations of prices and distributors' margins for specific foodstuffs.

Mr. van Straubenzee: Was it that machinery, among others, that produced the statistics showing that in the year ended in May the cost of living had risen by 17·1 per cent., giving us the biggest gap between that and earnings since records started? What proportion of that 17·1 per cent. is due to increases in food prices?

Mr. Maclennan: The machinery for collecting the retail price index is the machinery that gave us the figures for the latest monthly change in the index.

Mr. Spearing: Since my hon. Friend said earlier that he would refer particular items to the Price Commission, will he consider referring the price of bread, since the Safeguard Britain Committee recently stated that, according to its calculations, the increased levy on grain from North America had put 7p on the price of a loaf? In order to get the facts straight,


will my hon. Friend refer that matter to the Price Commission?

Mr. Maclennan: The bread industry has been subjected to a number of inquiries recently, including one by the Monopolies and Mergers Commission, which has just published its report. The major bread manufacturing companies are subject to the control of the Price Commission under the new Price Commission Act. The three major companies will have to pre-notify proposed price increases, and in the past the Commission has not hesitated to reduce the proposed increases if it has felt that they are not justified.

Mr. Gow: What, in the opinion of the Government, would be the effect on the levels of prices, employment and investment if the Price Commission were abolished forthwith?

Mr. Maclennan: The effect would be exceedingly adverse, because there would be no guarantee that unjustified price increases would not be made by companies enjoying monopolistic or oligopolistic positions in the market.

Mr. McNamara: May I refer to my hon. Friend's original answer? Does he recognise that the earlier exchanges about fresh fruit and vegetables indicated that the Price Commission's methods of monitoring, particularly on seasonal foods, cannot be effective if it is not producing reports until two months after the prices have been paid?

Mr. Maclennan: As I indicated earlier, I propose to discuss with the new Commission the question of the time lag between its examination of prices and the publication of its reports on standing references. My hon. Friend is right to draw attention to the rapid fluctuations that occur in prices, largely because of changing supplies. Is it important to ensure that the consumer enjoys the benefit of the producer's reduced costs.

Mr. Giles Shaw: Will the hon. Gentleman comment on the Price Commission's report on coffee, bearing in mind his statement that the consumer should benefit from any reduction in costs? Does he think that the distribution of coffee will be maintained if, as is proposed, there is intervention in the distributors' margins for the sale of coffee? As the report exonerated those who trade in coffee from

profiteering, is this the way that he expects the Price Commission to operate in future? What will happen to the distributive margin policy if coffee prices come down?

Mr. Maclennan: I notice that the hon. Gentleman was careful to refrain from saying that the Opposition approve of price control where cash margins would be increased. It would be helpful if they would make clear their position on this matter. It was made abundantly clear by the Price Commission that because of increases in the gross percentage margins the cash margins had widened considerably. That is why my right hon. Friend announced measures to control the cash margins on the pound of coffee that the housewife has to buy. As for the hon. Gentleman's question whether the Price Commission's action on this matter portends its future action, it is up to the Commission, following reference by my right hon. Friend of a particular price or sector, to make its examination and to recommend proposals, which can include a freeze on cash margins or the setting of maximum prices.

Wholesale Prices

Mr. Wakeham: asked the Secretary of State for Prices and Consumer Protection what was the latest recorded percentage increase in the year-on-year wholesale prices index.

Mr. Hattersley: The wholesale prices index of the output of manufacturing industry rose by 20·9 per cent. in the year ending June 1977, but the index for inputs of materials and fuel rose by 15·.2 per cent.—about half of the January figure.

Mr. Wakeham: Can the right hon. Gentleman say when the year-on-year increase was last in single figures?

Mr. Hattersley: Not without notice, but I can repeat the last part of my original reply. There has been a substantial improvement in the index, and we hope and believe that it will soon be reflected in prices in the shops.

Hire-Purchase Interest Charges

Mrs. Wise: asked the Secretary of State for Prices and Consumer Protection if he will now require hire-purchase


companies to disclose the real rate of interest which they charge.

Mr. John Fraser: The stautory formula employed where interest rates are shown in current hire-purchase advertisements gives only an approximation. I am having consultations about new regulations under the Consumer Credit Act which will apply to all types of credit and which for the first time will allow consumers to compare the effective annual percentage rate of charge of all kinds of credit transactions.

Mrs. Wise: Is my hon. Friend aware that his reply will be received with satisfaction, as it is really very important that consumers should be in a position to make sensible comparisons, but will he ensure that his new regulations receive adequate publicity?

Mr. Fraser: I am glad that my hon. Friend gives a welcome to the proposed new regulations. I shall certainly do what I did on the last occasion and give as much publicity as possible, with explanatory leaflets, so that traders and the public can understand the regulations.

Mr. Pavitt: In the light of the Price Commission's report on the sale of commercial hearing aids, which showed that the majority were bought on hire purchase on the doorstep and that the cost of production is £22 and the selling price £140, will my hon. Friend have a special look at the way in which the credit terms are made known to elderly people? Will he also look at the margin of £120 between the cost of production and the selling price?

Mr. Fraser: The matter of cost does not arise from the Question, but if my hon. Friend has complaints about the selling practices and the credit practices of any companies, which may be relevant to the licensing of those companies this year, perhaps he will give any appropriate information to the Director General of Fair Trading.

Citizens' Advice Bureaux

Mr. Michael Morris: asked the Secretary of State for Prices and Consumer Protection whether citizens' advice bureaux are to be encouraged to expand their service in giving consumer advice or whether it is his policy that they should

disband these in favour of local authority advice centres.

Mr. John Fraser: I consider both types of service to be extremely valuable and complementary. That is why my Department is this year providing grants totalling £4·5 million towards the work of both citizens' advice bureaux and consumer advice centres.

Mr. Morris: In view of the large figure that the Minister has mentioned, may I ask him whether he is aware that the grant to the citizens' advice bureaux ends in April 1979 and that at this point of time they have no knowledge whether their work in this sector can continue?

Mr. Fraser: My Department is in close consultation with the citizens' advice bureaux about the amount of the grant after 1979 and will give the matter very serious consideration, because the bureaux do a very valuable job of work for the general public.

Mr. Litterick: Is the Minister satisfied that his undertaking to give that degree of financial support for consumer advice centres will be enough to deter the now too numerous Tory authorities from closing down large numbers of consumer advice centres and thereby sabotaging our efforts to control prices?

Mr. Fraser: I must exonerate many Conservative authorities which have a good record on consumer advice centres. I should be sorry to see the centres become a political football. I deplore what has happened in Birmingham. I have spoken to the chairman of the appropriate committee, but the authority still seems bent on closing every conceivable advice centre. It would be extremely valuable if we could have a word from the hon. Member for Gloucester (Mrs. Oppenheim) encouraging her colleagues in the West Midlands at least to think twice before cutting, in an almost vandalistic way, an extremely valuable service to the citizens of the country.

Pricing Practice (Value Added Tax)

Mr. Greville Janner: asked the Secretary of State for Prices and Consumer Protection whether he will legislate to require all prices to be shown inclusive of VAT.

Mr. John Fraser: This question has been the subject of a very full and helpful report by the Consumer Protection Advisory Committee, published a few days ago, which substantially endorsed the proposals put forward by the Director General of Fair Trading. I am urgently considering the report and hope shortly to announce the action I propose to take on it.

Mr. Janner: May I say how very welcome that announcement will be and that one hopes that the action which my hon. Friend proposes to take will be taken very swiftly? In the meantime, will he advise traders to include VAT in the total price shown? In so far as they see fit to show VAT separately, will he advise them to ensure that the words "plus VAT" are given in large letters and to state the percentage of VAT which will be added?

Mr. Fraser: I should be very happy to offer that advice. I think that most traders follow it. A minority does not follow it. That ought to lead to legislation under, I think, Part II of the Fair Trading Act 1973.

Mr. Neubert: Is it not interesting that recommended retail prices were not required to be inclusive of VAT, and is not this additional evidence that recommended retail prices are a valuable point of reference to the prospective purchaser and are in general well understood by the consumer?

Mr. Fraser: I do not think that advertising a maker's recommended prices exclusive of VAT is of any use to anyone, but that is the view that the CPAC took of it and, therefore, I must accept it.

Credit Cards

Dr. McDonald: asked the Secretary of State for Prices and Consumer Protection how long he expects the Monopolies Commission to take to report on credit cards.

Mr. John Fraser: This reference, which was made by the Director General of Fair Trading on 23rd June, requires the Commission to report within 18 months.

Dr. McDonald: I thank my hon. Friend for that answer, but will he not consider ensuring that the Monopolies Commission looks at the rate of interest charged to

credit card holders, which is currently 26·82 per cent., or does he think that the publicity given to the real rate of interest, following the extension of the Consumer Credit Act, will be sufficient to discourage potential customers?

Mr. Fraser: I think it is probably within the terms of reference of the Monopolies Commission to look at the rate of interest being charged. I suppose it is the hope of all of us that, following the very welcome reduction in interest rates brought about by the Government, the credit card companies might follow that Government example.

Mr. Michael Morris: Is it the Government's policy that the Monopolies Commission should be encouraged to look at foreign-owned credit cards as well as at our own domestic credit cards?

Mr. Fraser: I am not certain, but I rather believe that the reference would include those companies as well.

Electrical Plugs and Sockets

Mr. Spearing: asked the Secretary of State for Prices and Consumer Protection what reply he has sent to any representations from the British Standards Institution concerning the proposed international 16-amp plug and socket system.

Mr. John Fraser: Government comments have been sent to the British Standards Institution by my Department on proposals leading to a voluntary international standard for a new and unique system of electrical plugs and sockets. These proposals, although fundamental, do not specify a complete system, and until full details of this are available the Government cannot endorse their formal acceptance.

Mr. Spearing: Does the Minister understand that even the prospect of a voluntary system for operating some of the proposals which have been made public is arousing deep misgiving among the British public, and particularly among people who have ring mains? Will he let the House know his views on whether any future standards should involve fusing for each plug? Has he any plans for displaying to the public some of the proposals relating to this voluntary system, whatever his views may be about them?

Mr. Fraser: It is a proposed voluntary international standard, and the proposals are at such an early stage that it is too soon to make any judgment at all about fusing, integration with ring main circuits and so on. It is such a long way off that I must reserve my position until I can see in detail how the international standard works out.
I understand that some publicity has already been given to explaining the system, but it is probably too early a stage at which to be able to explain any kind of comprehensive system as to the interface between the plug and the socket.

Mr. Costain: Is the Minister aware that some of those who are not enthusiastic above the common Market, are trying to persuade the public that all the latest 13 amp systems in this country are out of date? Will the Minister make it clear that they are not?

Mr. Fraser: They are not out of date. If this country were to adopt the new system, it would not come into general use for 60 or 70 years.

Price Commission Investigations

Mr. David Mitchell: asked the Secretary of State for Prices and Consumer Protection whether he will seek to change the delaying powers of the Price Commission during investigations from preventing increases until approved to permitting until disapproved.

Mr. Hattersley: No, Sir. The hon. Member's suggestion was specifically rejected by the Standing Committee on the Price Commission Bill on 17th May. The power to freeze prices during investigation is justified and will not jeopardise the viability of firms under investigation.

Mr. Mitchell: Is the Minister aware that, while it may not jeopardise the viability of firms under investigation, the price in the small firms sector is determined by the price leaders in the market, and that what may enable a large firm to go on trading semi-economically will bankrupt a small firm and lead to unemployment?

Mr. Hattersley: The Chairman-designate of the Price Commission made very clear at his first Press conference that he believed that investigations into each

company had to bear in mind the interests of other companies that might be directly affected in the way that the hon. Gentleman has stated. I have no reason to believe that the exercise of proper powers by the Commission would have the adverse effect that the hon. Gentleman proposes.

Mr. Madden: Does my right hon. Friend agree that the action of the brewery companies in proposing to increase their prices by 1p or 2p a pint before publication of the Price Commission's report or before prices legislation constitutes sharp practice? What can my right hon. Friend do to stop the brewers acting in this irresponsible fashion?

Mr. Hattersley: I have no power to prevent the increases that the brewers announced. Some people say that they did it because they do it every three months and it is their normal practice. I await the Price Commission's report with great interest, and I hope that the House may want to return to this subject after the report has been presented to me and when I have seen its recommendations, if any.

Mr. Giles Shaw: In relation to the question of my hon. Friend the Member for Basingstoke (Mr. Mitchell), will the Secretary of State comment on the question of allowable costs being allowed in the period of investigation? This would substantially help small firms and firms uder investigation.

Mr. Hattersley: No. There are substantial safeguards already for the viability of small firms. There are the formal safeguards under Section 9 of the new Act. There are other safeguards—for instance, the safeguards inherent in Section 2. Neither the company under investigation nor companies with which it is associated face the danger that the Opposition pretend. It is much more of a political debating point than a real fear of industry.

EUROPEAN COMMUNITY ECONOMICS MINISTERS

Mr. Gow: asked the Chancellor of the Duchy of Lancaster whether, in his capacity as special adviser to the Prime Minister on economic matters, he will


make a statement on his meetings with his EEC colleagues at the end of June.

Mr. Tim Renton: asked the Chancellor of the Duchy of Lancaster whether, in his capacity of special adviser on economic matters, he will make a statement on his meetings with his EEC colleagues at the end of June.

The Chancellor of the Duchy of Lancaster (Mr. Harold Lever): I had no meetings with EEC colleagues at the end of June.

Mr. Gow: If the right hon. Gentleman had had such meetings, would he have drawn the attention of his colleagues to the imbalance between the level of public expenditure in the United Kingdom and the level of public expenditure in the other countries of the Community? If he had done so, would he have acknowledged his own repentance in that the Government are now committed to a continuing and substantial reduction in the resources required for public expenditure in the next few years?

Mr. Lever: Any educational activity that I might have been tempted to pursue in relation to the size of public expenditure I should have focused where it was most clearly needed—namely, on the Opposition Benches. Public expenditure in this country is not at all out of line with the level of public expenditure in other countries of the European Community. Public expendture is not ex hypothesi a bad thing. It is a good thing in principle if it is wisely and in proper proportion directed. It is the Government's intention to continue wise public expenditure and to have due regard to the proportions and timing of that public expenditure.

Mr. Renton: In the course of the right hon. Gentleman's many informal meetings with his colleagues on the Continent, is he able to convince his EEC colleagues that Britain is ready to embrace the European cause? Does he believe that himself? If so, when will he start to convince those of his Cabinet colleagues —one of whom is sitting close to him on the Government Front Bench—who voted against the direct elections Bill?

Mr. Lever: I do not regard it as my function specifically to assert the right direction that any of my right hon.

Friends embraces. Other members of the Community have recognised that there is a genuine difference of opinion on both sides of this House about the wisdom and attractions of being members of the Community. They recognise that and also recognise that the overwhelming majority of Members on both sides—in aggregate at any rate—fully recognise that we have joined the Community and that we are determined to make a success of our membership as a loyal, if critically constructive, member of the Community.

Mr. Hooley: In any discussions that my right hon. Friend has with his EEC colleagues, will he emphasise the importance of expanding resources for the IMF, particularly with a view to helping developing countries with balance of payments problems?

Mr. Lever: Yes, Sir. I think that it is of great importance for the general prosperity of the world and the fuller recovery of the world from the present recession that we should advance our co-operative thinking in precisely those areas.

Mr. Pardoe: Reverting to the question asked about public expenditure, may I ask the right hon. Gentleman to confirm that the borrowing requirement in the current financial year is approximately the same proportion of the GNP as it was in the last year of the last Conservative Government? Will he confirm that public expenditure in this country is not a higher proportion of GNP than in most of the OECD countries? Will he also categorically state that, unless private investment takes up the slack and brings down unemployment, some Government will have to increase public investment?

Mr. Lever: There is a very natural reticence on this side of the House, especially in my case, to emphasise those areas —whether it be the weather or proportions of public expenditure—which in the case of my Government resemble what happened under the Conservative Government. When I said "my Government" it was intended as shorthand to mean the Government of which I have the privilege to be a member. I have already answered the point about the proportion of public expenditure. On investment, I am absolutely clear that there is plenty


of scope for useful public investment in the nationalised and publicly-controlled industries. I am also clear that we will get ample investment in the private sector if the conditions favouring successful investment in that sector exist.

Mr. Molloy: Does my right hon. Friend agree with the recommendations of the TUC Economic Committee apropos public expenditure, warning that indiscriminate cutting of public expenditure could have disastrous effects on prices and employment? Does my right hon. Friend further agree that these are the sort of things that he should be talking about to his EEC colleagues because they are recommendations from people who know far more about industry and finance than do many Opposition Members?

Mr. Lever: I am very much opposed to any indiscriminate cutting of public expenditure. It is not necessary to discuss this with my EEC colleagues.

Mr. Biffen: In the right hon. Gentleman's role as special economic adviser, will he use all his authority and influence to support those in the Council of Ministers who are resisting the grotesquely inflated budget for the Common Market which has been proposed by the Commission, even if in so doing he treads on the sensitive corns of Commissioner Jenkins?

Mr. Lever: I was not aware until the hon. Gentleman mentioned it that Commissioner Jenkins—or President Jenkins—had any specially sensitive portions of his anatomy that I should avoid. I shall always support my colleagues in constructive and useful contributions to the EEC.

CHANCELLOR OF THE DUCHY OF LANCASTER (ENGAGEMENTS)

Mr. Canavan: asked the Chancellor of the Duchy of Lancaster if he will list his official engagements for 25th July.

Mr. Lever: Apart from my duties in this House, I have meetings today with ministerial colleagues and with officials.

Mr. Canavan: Will my right hon. Friend make a statement about his attitude towards the TUC-Labour Party working group proposals for a wealth

tax? As my right hon. Friend appears to be the Government's tax consultant, will he advise the Treasury to implement this proposal, which would bring in about £550 million from very rich people such as Sir Hugh Fraser, the Shadow Secretary of State for Prices and Consumer Protection—the hon. Lady the Member for Gloucester (Mrs. Oppenheim)—and the Chancellor of the Duchy of Lancaster?

Mr. Lever: I have not had the advantage that my hon. Friend has obviously had of being privy to these secret and valuable discussions. I assure him that I shall react to them on their merits. I shall give them such support as they deserve.

QUESTIONS TO MINISTERS

Mr. Lipton: On a point of order, Mr. Speaker. Have you had any request from the Chancellor of the Exchequer to make a statement today about the large issue of faulty Treasury notes by the Bank of England?

Mr. Speaker: No, I have not.

POSTAL SERVICES (NORTH-WEST LONDON)

Sir K. Joseph: Sir K. Joseph(by Private Notice) asked the Secretary of State for Industry what action has been taken to provide a normal postal service in the NW2 district of London.

The Secretary of State for Industry (Mr. Eric G. Varley): Following the removal of 65 bags of Grunwick mail on Saturday, the Post Office called upon all workers at the Cricklewood office to resume normal working. I understand that the postal workers at Cricklewood held a meeting this morning, and a further meeting is to be held later today.
The Post Office and the Union of Post Office Workers are doing all possible to persuade the staff to work normally.

Sir K. Joseph: Is the Secretary of State aware that it is reported that pension books are being held up, and it is certain that business men and people in the Cricklewood area totally unconnected with the industrial dispute are suffering damage? Are such people entitled to compensation? Second, has the Secretary


of State received any request that the postal monopoly should be removed for the relevant duration and area?
Third, recognising that the Post Office has difficulty in carrying out its statutory duties and that there is bound to be a risk in enforcing the law, will the right hon. Gentleman not acknowledge that there is much greater risk in not enforcing the law?

Mr. Varley: I am, of course, aware of the difficulty being caused in the NW2 district to those who use the postal service and of the damage which it is causing. That is the reason why the Post Office, with the Union of Post Office Workers, has consistently advised those who work in that office to resume normal working. Their efforts are taking place today, and they will continue through the day until they achieve their objective.
As regards compensation, I understand that people are not entitled to compensation as a result of this difficulty, but it is something I shall look into further with the Post Office Corporation.
I have not received any specific request from anybody living in the NW2 area for the lifting of the monopoly, but, of course, I have discussed it with the Post Office Corporation. I have not come to any decision at this stage. The House will recall that, on the last occasion when the right hon. Gentleman put a Private Notice Question to me, I said that lifting the monopoly at this stage could well exacerbate the situation.

Mr. Peter Thomas: Does the Secretary of State agree with the statement recently made by the General Secretary of the Electrical Power Engineers' Association, following a request made by APEX that his members should withhold supplies of electricity to Grunwick, that, irrespective of the merits of a particular dispute, if workers with a statutory obligation to provide services to the whole community start down the road of discrimination we would indeed be on the highway to anarchy?
If the right hon. Gentleman agrees with that, will he forcibly bring it to the notice of the Post Office? Second, has the right hon. Gentleman personally considered the many letters which I have sent to him from people in the NW2 area who are suffering considerable damage,

and, if he has personally considered them, why has he not given me the courtesy of any replies?
Third, is the Secretary of State aware that, unless the Post Office insists on the performance of its clear statutory duty to provide services to the NW2 area, there will be a widespread and irresistible demand for a change in the Post Office monopoly and a change in the 1969 Act so that people who suffer damage may receive compensation?

Mr. Varley: I am not aware of any statement made by the General Secretary of the Electrical Power Engineers' Association, but, of course, both my colleagues and I, speaking from this Dispatch Box, have consistently made plain that we think that normal services ought to be resumed in the Cricklewood sorting office —and that is the view of the Union of Post Office Workers, too.
As to the right hon. and learned Gentleman's letters, I have seen a good many letters concerning this dispute, and many of them are receiving my personal attention.

Mr. Pavitt: Will my right hon. Friend use his influence with the Post Office to ensure that, irrespective of their attitude towards the Grunwick mail bags, Post Office workers be permitted to clear every other letter in the NW2 district, as they have been willing to do for the past three weeks? Further, before the provocative action took place last Saturday afternoon—when 65 Grunwick mail bags were removed, although business men in the NW2 area had been requesting the same facility for three weeks and had been denied it—was there any consultation with the Government, including the Department of Employment? I ask because of the possibility of the escalation of this trouble on account of what seems to the people in the area to be justice not appearing to be done, with Grunwick being treated in one way, and its mail bags being escorted by the police, whereas other people's mail remains still in the office? Is my right hon. Friend aware that this makes the rule of law and order look rather silly?

Mr. Varley: I understand from the Post Office that the 65 bags of Grunwick mail removed on Saturday had not yet entered the postal system—that is to say,


it was unfranked mail. It was a decision of the Post Office, after consulting the Union of Post Office Workers. I was not informed until the action had been carried out.

Sir K. Joseph: Reverting to his earlier answer to me, will the right hon. Gentleman say whether the Post Office has itself suggested to him that the monopoly be removed for the duration and area concerned?

Mr. Varley: The Post Office has put to me that it would be as well for the Government to consider—[HON. MEMBERS: "Get on with it."] I am trying to choose my words. This is a difficult matter, and I want to get it right. It is all very well for hon. Members to shout, but it is a difficult matter. The Post Office has put to me the suggestion that the Government should consider revocation. I told the Post Office, when it put it to me, that at this stage it is the view of the Government—the political view of the Government—that to do that would exacerbate the situation.

Mr. Gorst: Can the right hon. Gentleman confirm that, apart from the two places in NW2, mail is being interfered with in both W1 and EC1? Second, will he give a general direction to the Post Office to dismiss those workers who refuse to handle the mail? Third, can the right hon. Gentleman confirm that it was the Prime Minister himself who vetoed the suspension of the Post Office monopoly?

Mr. Varley: No, it was not the Prime Minister himself. I took the decision, I recommended that decision to my colleagues, and they accepted it. As regards other mail being interfered with, I understand that there is some trouble in other districts, but our decision is as I have stated it on many occasions, namely, that we want to see services pursued normally throughout.

Mr. Hooson: Does the Secretary of State agree that for the Post Office to tolerate selective interference with the mail will create a dangerous precedent and that hon. Members on his side of the House who are cheering might reflect that that selective interference could one day be used against their interests? Second, does the right hon. Gentleman agree that the sole justification for a

monopoly in the Post Office is so that the Post Office itself and its employees could carry out their statutory duty?

Mr. Varley: Our view is as I have already stated it, that normal working ought to be resumed right throughout the Post Office service. That is what the Post Office Corporation is trying to achieve, and in that it is assisted by the Union of Post Office Workers.

Mr. Skinner: Will my right hon. Friend agree that in any strike or industrial conflict someone is bound to get hurt? That would apply if the doctors were to go on strike, as they have suggested they might do, in the relatively near future. Does my right hon. Friend further agree that in the Post Office strike of 1971, which was created by the Opposition who were then in government, there was wide-scale disruption throughout the length and breadth of the country for many small business men, industrialists and others? Does he also agree that in the Tory-orchestrated miners' strike of 1974, during the three-day week, the activities of millions of people were disrupted as a result of the Tories' campaign against the miners? If compensation is to be paid, should it not be put at the door of the hon. Member for Hendon, North (Mr. Gorst) and George Ward?

Mr. Varley: There are difficulties and inconveniences in any industrial dispute. That is axiomatic. My hon. Friend is right in what he says about the history of Post Office disputes. In 1971, there was massive disruption and, as I understand, no member of the Opposition, who were then sitting on this side of the House, said that prosecutions or other action should be taken against the Post Office workers. Similarly, in 1973, when highly discriminatory action was taken when the Post Office workers blacked communications between this country and France in protest against the test ban treaty, no action was taken by the then Conservative Government.

Mr. Dykes: I appreciate that the right hon. Gentleman has had a bad run lately, but will he promise the House that he will get a grip on this absurd and ridiculous dispute and crisis? Is he aware that at the meeting of small businesses last Thursday a large number of small companies made it clear that they are literally


on the verge of bankruptcy as a result of this dispute?
Will the right hon. Gentleman therefore undertake to do three things without further delay: first, to sack Sir William Ryland for gross incompetence and complacency as a result of the actions of the last few days; secondly, to meet the Post Office workers in the location concerned to get them back to work; and, thirdly, to make sure, as a result of sorting out the Post Office's legal and statutory duties, that a similar situation does not arise again?

Mr. Varley: The answer to the first question is, "No". The answer to the second is that I shall get in touch with the officials of the Union of Post Office Workers. The answer to the third is that I, together with my colleagues, are urging that normal services be resumed in NW2.

Mr. Alexander W. Lyon: I acknowledge that postmen cannot be compelled to deliver Grunwick mail if they do not wish to do so. Is it not the case that innocent users in Cricklewood of the Post Office service are suffering because the discriminatory action was enlarged as a result of Opposition Members urging the Government to put pressure on the Post Office to deal with its workpeople? Before the hon. and learned Member for Montgomery (Mr. Hooson) goes further with his line of argument, will my right hon. Friend recognise that if further pressure is put on the men by sacking them the likelihood is that none of us will get any mail?

Mr. Varley: That is one of the considerations which we have had to have in mind, and I am sure that right hon. Members opposite had it in mind when they were in government during the 1971 and 1973 disputes. I have not been able to advise my colleagues that we should lift the monopoly because we think at this stage that it would only create even further difficulties for postal users in Britain.

Mr. Tebbit: First, can the right hon. Gentleman say whether there is any precedent for the Post Office asking for its statutory monopoly to be suspended and the Secretary of State refusing to recommend that course of action to his colleagues? Secondly, can he tell us

exactly why postmen will not go to work in NW2?

Mr. Varley: I understand that further meetings are to take place today and that discussions will take place about the handling of the mail and backlog of mail of the small businesses which are being severely affected. Quite frankly, I do not know whether the lifting of the monopoly has been refused when requested.

RHODESIA

The Secretary of State for Foreign and Commonwealth Affairs (Dr. David Owen): I will, with permission, make a statement on my talks on Rhodesia with the United States Administration.
As the House knows, I visited Washington over the weekend, primarily to discuss the Anglo-United States peace initiative for achieving a negotiated settlement in Rhodesia. I spent nine hours in discussion with Secretary Vance and one and a half hours with the President.
Mr. Vance and I have agreed to meet again in London around 11th and 12th August. Meanwhile, detailed work will continue with a view to putting forward specific Anglo-United States proposals to all the parties.
We are all agreed that the situation in Rhodesia is potentially so serious that the Anglo-United States initiative, despite all the difficulties, should continue and that we should do all we can to bring about an independent non-racial Zimbabwe after a fair election and on the basis of universal suffrage. In the last analysis, peace can only come from agreement between those people, black and white, who will be living together in an independent Zimbabwe.

Mr. John Davies: Is the Foreign Secretary aware that, although we thank him for his statement, it is not sufficient to allay the anxieties of the House before it goes into recess at the end of the week? The right hon. Gentleman has indicated that there will be consultations, which we much welcome, with the United States to reach an agreed position, and no doubt with others, if we are to judge correctly from the Press. But is it not a fact that the House will not have had any opportunity of expressing its views on the proposals which the Foreign Secretary means


to put forward? Is not that a very serious situation, given the fact that, as he says, the position in Rhodesia could hardly be more grave?
Secondly, we have gained the impression—again largely from Press reports, but the right hon. Gentleman has confirmed it to a certain degree—that the reception given to the mission organised under Graham and Low has been, on the whole, pretty negative from both sides. May we feel confident that it is on the basis of their work that the alternative proposals will be put forward? Is this the basis upon which we may expect some kind of suggestion? If so, will the right hon. Gentleman clarify how he proposes to handle the all-important question of security during any interim arrangement which may be made?
Finally, over many months the Opposition have, with great forbearance, suggested and suggested and suggested that there was an urgent need for a permanent mission in Salisbury. We have felt throughout that without such a permanent mission it would be literally impossible within a reasonable time for there to take place that which the right hon. Gentleman advocates and which we think is right—a fair election on the basis of universal suffrage. Why will not the right hon. Gentleman organise within a reasonable time such a mission from which alone he can draw the necessary information in a country which has never had a fair election on the basis of universal suffrage?

Dr. Owen: I understand the right hon. Gentleman's first point about the question of consulting the House. I should have wished to be able to bring proposals before the House in time for normal debate. Unfortunately, as he knows, and as I think right hon. and hon. Members on both sides of the House recognise, I am not in total control of the timetable, and I regret that. It is not simply a question of negotiation with the United States. I should have wished to be able to achieve this earlier.
I welcome the right hon. Gentleman's support for the concept of fair elections on the basis of universal suffrage. It is very important that we should agree on this basic element. It is one of the central elements in the proposals which have been

discussed by the Anglo-United States consultative group and it has been broadly welcomed by all the nationalist leaders and many other leaders in Africa. Where there is apparent disagreement is in what Mr. Smith said in his broadcast to the nation, but if one examines carefully what he said one can see that it is not an absolute rejection of the principle of "one man, one vote", although he has given the impression to the electorate, at least, that he rejects it and wishes to go back to a qualified franchise.
The question of having a permanent mission in Salisbury has been under constant and careful thought. I openly admit that on a number of occasions we have been on the point of doing something and Mr. Smith has responded in a way which gives one cause to doubt his genuine commitment both to the purposes of the Anglo-United States consultation—[HON. MEMBERS: "Give an example."] On one occasion, for instance, he took the decision to have a raid 80 miles into Mozambique. On a further occasion there was a question of putting into detention people who would normally be involved in any process of elections. Now, without consultation with anyone—as he is entitled to do—he has—[Interruption.] We do not recognise his régime. He is de facto—[Interruption.] I was just saying that we do not recognise his régime. But he is entitled, if he wishes to, to call an election. That is a de facto fact of life that I have to live with. [HON. MEMBERS: "It is an illegal Government."] I agree. If hon. Gentlemen had listened, that is what I said. What I am saying is that all the actions which have been undertaken by Mr. Smith since April have given me grounds for pessimism about the extent and the genuineness of his commitment to black majority rule.

Mr. Thorpe: Is the right hon. Gentleman aware that we warmly welcome the continuing interest and involvement by the President of the United States in these negotiations? Perhaps, understandably, the statement gives us a modicum of hope with a minimum of information. Will the right hon. Gentleman comment on the four-point proposal recently put forward by Bishop Muzorewa? Does he feel that there is sufficient agreement on the principle of majority rule to set up a constitutional working party now and should not Mr. Smith be obliged to agree to


such a measure? Finally, on interim security, since the Commonwealth appears to be out and the United Nations appears to present real difficulties, can the right hon. Gentleman tell us what he now has in mind?

Dr. Owen: We have had extensive consultations with Bishop Muzorewa, all the major nationalist leaders and many of the white Rhodesians inside Rhodesia about a constitution. We are close to being able to produce proposals which, although not consensus, are proposals on which we think it is possible to reach some measure of agreement.
If they were to be broadly acceptable it would be possible to hold a normal constitutional conference. That is an objective which I share. Similarly, Bishop Muzorewa, as have all the other nationalist leaders, has endorsed the concept of "one man, one vote". The difference is not very great and Bishop Muzorewa has said that he wishes the Anglo-United States initiative to be pursued.
The transitional period—this was a point also raised by the right hon. Member for Knutsford (Mr. Davies)—is a very difficult issue. We need to keep an open mind on all the various options. I am not in a position at this moment to tell the House what we intend to do because we genuinely intend to have further consultations to try to ensure that when we do put forward proposals they have as great a degree of agreement as possible. But this is; a central difficulty which we still have to resolve.
Given a firm commitment from the United States and ourselves, and given some measure of unanimity particularly from the Front Line Presidents and possibly South Africa, I think that it may be possible to resolve this problem.

Miss Joan Lestor: Bearing in mind my right hon. Friend's strong moves to try to bring about a settlement in Southern Rhodesia, may I ask him to think again about his use of the word "entitlement" with regard to the calling of a General Election by Mr. Smith? Is my right hon. Friend not aware that that word will cause a great deal of alarm to the nationalist leaders in Southern Rhodesia and that the use of the word "entitlement" with regard to an illegal régime could also bring about the concept that the hangings

and the various other acts that have taken place since UDI have "an entitlement" about them which many hon. Members do not accept?

Dr. Owen: I do not claim to have used very good words to describe the situation. I am happy to accept my hon. Friend's minor rebuke and to withdraw the word "entitlement". It is not a legal entitlement. However, one problem is that I have had to deal with Mr. Smith as the de facto controlling power although his is not a legal régime as this House and successive Governments have been prepared to accept, and rightly so. It is very important for those people who are pursuing the objective of an orderly and peaceful transition to majority rule to recognise that we in this House have still a legal responsibility, but similarly we have to recognise that we do not have the power to enforce that legal responsibility.

Mr. Powell: In view of certain reports that have appeared today, may I ask the right hon. Gentleman whether there would not he a total inconsistency between this country's claim to possess exclusive sovereignty in Rhodesia and the acceptance of a United Nations presence in that country?

Dr. Owen: I do not want to define sovereignty with the right hon. Gentleman. It is an issue on which we have often clashed in the past. I would not claim that we have exclusive sovereignty in the sense of political reality. Although we do have a legal position with regard to the situation in Rhodesia, we do not, as I have openly said, have the power to enforce it.
In my definition of sovereignty, it is not exclusive. I have made it clear all along that I do not believe that Britain alone can bring about a settlement. That is why I have worked on an Anglo-United States initiative. I do not believe that we can exclude a rôle either for the United Nations, the Commonwealth, the Organisation of African Unity or any group of nations which is concerned about the situation which currently exists in Rhodesia.

Mr. Hooley: In the course of his conversations with Mr. Vance, did my right hon. Friend discuss the question of the hangings in Rhodesia by the illegal régime? Did he discuss the possibility,


which I believe to be essential, of creating some form of international force to carry out the transitional period?

Dr. Owen: We did discuss the transitional period. It is a key element and we went into it in some detail. I had no need to discuss the hangings with Mr. Vance because we have both made our views publicly known about them and we agree.
I told Mr. Smith in April that these hangings were offensive to international public opinion and that if he genuinely wanted to show that he was moving towards majority rule, one of the ways of doing so would be to desist from them. Unfortunately, he has continued with them, and that decision is one of the problems.

Mr. Amery: Will the right hon. Gentleman agree that moderate African nationalist leaders, such as Bishop Muzorewa and the Reverend Ndabaningi Sithole, have come increasingly to the view that they have more to fear from the Patriotic Front than they have from the régime, while the régime on its side has increasingly come to the conclusion that it must do a deal if it is to survive in the long term? Does the right hon. Gentleman not agree that the scene is set for a possible settlement? Will he be careful that his proposals do nothing to prevent an internal settlement or give any power of veto to the Patriotic Front?

Dr. Owen: I have always made it clear that any proposals which are put forward would be aimed at trying to achieve a settlement. At the outset of the negotiations I could not accept a system where any one group had an ultimate veto. This was one of the difficulties of the Geneva negotiations and the discussions following Geneva.
With regard to an interim settlement, one of the grave dangers in talk about an internal settlement is that it does not recognise the cardinal principle of universal suffrage. As often espoused, it does not satisfy the prime commitment which everyone in this House wishes to see to fair elections, and it would allow a continuation of the armed struggle, in which case it would be difficult to hold elections in the present climate.
But, in order to survive, any Government in Zimbabwe, either black or white, needs to have recognition by the international community. To exclude any nationalist leaders from a fair electoral process would be a recipe for continued strife. It is a cardinal principle of the Anglo-United States initiative that we do not intend to choose the leadership of a future Zimbabwe. That is for the people of Zimbabwe.
That is why, despite many claims to the contrary, I have refused to accept that we should talk only to the Patriotic Front. We have talked to the Patriotic Front, to Bishop Muzorewa, to Mr. Sithole and to many other different groupings.

Mr. Arthur Bottomley: Is my right hon. Friend aware that, although we wish him well, some of us have doubts about the policy being pursued? As this may be the last occasion before the House rises to express a personal opinion, may I plead with my right hon. Friend not to take a decision to place British troops in Rhodesia?

Dr. Owen: I know that my right hon. Friend follows this subject very carefully, and I respect his views. There are many people who have been advising me against becoming involved in this problem. As Foreign Secretary, I do not believe that I have any alternative but to continue to try to achieve a peaceful settlement. As for British troops, that is a threshold across which successive Governments since 1965 have not been prepared to go. It is quite understandable why. There would be severe problems involved. I wish to produce proposals which will give a lasting peace to the area. I do not know whether it can be achieved. But I shall take into account all the feelings expressed to me.

Mr. Evelyn King: If, ultimately, there is to be an election in Rhodesia based upon national suffrage, is it not of the first importance in the meantime that the British Government should show no partiality as between one nationalist group and another, and is it not a fact that, in the opinion of many people, the Foreign Secretary has already shown towards the Patriotic Front a favouritism which he should not have shown?

Dr. Owen: If that is the hon. Gentleman's view, I regret it. I have attempted


at all times to uphold the position. The House should remember how at one time it was said that the Anglo-United States consultative group would never get off the ground because of my insistence that it should speak to all nationalist leaders. If hon. Members were to look in my diary, they would see that my door had been open to all groups, and I have expressed this view clearly. However, I have to take account of certain realities. When it comes to the transitional period and to attempting to end the armed struggle, I am bound to have to focus my attention on those who are taking part in the armed struggle. That is a realitiy of power of which I have to take account.

Mr. Faulds: Does not my right hon. Friend agree that one of the essential requirements for a peaceful and responsible transfer of power during the transitional period is the enforced retirement of the white officers of the regime and their replacement by Commonwealth officers to help the integration of the black forces of the regime with the guerrilla forces in order to prevent murderous and bloody recriminations?

Dr. Owen: This is one of the difficult questions under discussion. I do not want to comment too much on it. In our consultations, there has always been a recognition by all sides that this transitional period would require some people who had become very exposed to personal and political criticism to make way for others. That is one of the issues at which we shall have to look. There is an acceptance that this is a legitimate problem, and there is some understanding of it amongst Cute Rhodesians

Mr. Maurice Macmillan: In talking to the Americans internationally about this very grave difficulty, will the Foreign Secretary make it plain that the United Kingdom has an interest which is slightly different from that of other countries in that we are more dependent on a peaceful transition and secure access to the raw materials in Southern Rhodesia and on the prevention of the domination of the sea routes by other countries, including the Soviet Union?

Dr. Owen: Yes, but I think that it is in the interests of all the Western democracies that there is a stable peace in the

whole area of Southern Africa. When we look at Rhodesia—concentrating though we in this House are bound to be on it—we cannot exclude considerations about Namibia and South Africa itself. It has always been my belief that it is in the interests of South Africa that there should be a transition to majority rule after democratic elections in Namibia and Rhodesia. There is some recognition inside South Africa that this is the case. We shall continue, however, to make clear to the South Africans our abhorrence of the policy of apartheid.

Mr. Robert Hughes: Am I right in thinking that the call of the right hon. Member for Knutsford (Mr. Davies) for fair elections in Zimbabwe on the basis of universal adult suffrage represents a conversion to majority rule? Notwithstanding the very strange change of heart of the right hon. Member for Brighton, Pavilion (Mr. Amery)—that Mr. Sithole is a moderate—for all things are possible, does my right hon. Friend remember that, before Geneva and before his own initiative in April, he was warned time and time again that Mr. Smith had no intention of having any peaceful transition to majority rule? How long will my right hon. Friend allow him to continue to desecrate the borders around Zimbabwe, and how long will he allow this illegal regime to continue?

Dr. Owen: If it had been in my power, I would have removed Mr. Smith the day that I took office. I make no secret of that. I do not believe that he has a contribution to make to black majority rule and peace in the country. But he is de facto the person with whom I have to deal and negotiate. Therefore, I have been prepared to meet him and to discuss these matters with him. I have not the power to make that change. I have only the power to use influence and to try to achieve a settlement and the removal of Mr. Smith from his office by negotiation. That is one of our main purposes.
The right hon. Member for Knutsford must speak for himself. But, on the basis of my understanding of his remarks, my hon. Friend's interpretation is correct. They are important. It is true that the nationalist leaders are moving around their alliances and their positions. It was only about a year ago


that Mr. Nkomo and Mr. Smith negotiated on the basis that Mr. Smith thought Mr. Nkomo was the person who could lead Rhodesia peacefully. In the last few months, there have been the most stringent criticisms of Mr. Sithole. It is comforting now that he can go back into Rhodesia and be regarded by the right hon. Member for Knutsford as a moderate leader of nationalist opinion.

Several Hon. Members: rose—

Mr. Speaker: Order. There is an im-important statement to follow. I shall take three more questions from each side of the House and, of course, the Opposition Front Bench afterwards.

Mr. Ian Lloyd: In view of the regrettable but quite inescapable evidence, first, that the introduction of universal suffrage in some 20 States north of the Zambesi has led to the introduction of either ethnic or party dictatorships and, secondly, that the introduction of universal suffrage will cotinue to be resolutely and absolutely opposed by the 4 million Europeans living south of the Zambesi, what hard evidence can the right hon. Gentleman give this House or anyone in Rhodesia that the introduction of universal suffrage in Rhodesia will not lead to exactly the same consequence?

Dr. Owen: The hon. Member for Havant and Waterloo (Mr. Lloyd) does not live in the world in Africa as it now is. There are many white people living in Africa who accept universal suffrage. In Zambia, a few months ago, a white person won an election in the Copper Belt totally dominated by black voters. That is not unusual. It has happened in other countries. We must look to what has happened in Botswana, we must take hope from what has happened in Kenya, and we must pursue the possibility that we can achieve a non-racial Zimbabwe I believe that we can.

Mr. Ioan Evans: In my right hon. Friend's discussions with President Carter and Mr. Vance, was there on the agenda our attitude to South Africa? Does not my right hon. Friend agree that, until we get South Africa to agree not to trade and work with Rhodesia, the illegal regime will continue, and that that is the key to the issue?

Dr. Owen: I do not disagree with my hon. Friend's analysis. It is the support which Rhodesia has had from South Africa—obviously in terms of key elements such as oil, but also in terms of armaments and many other ways— which has sustained it. Were that support not to have occurred, in direct contravention of the mandatory sanctions applied through the United Nations, it would have been a very different saga over the past 11 years. Then the violence now threatening to engulf everyone in Rhodesia, black and white, could never have taken place. The key to it all still lies in the South Africans recognising that a settlement in Rhodesia is in their interests and in the interests of the white Rhodesians.

Mr. Gow: Although I agree with the Foreign Secretary that Mr. Smith's Government is de jure an illegal one, is the right hon. Gentleman aware that he has given the impression in recent months that the Patriotic Front has a de jure status? Secondly, will the right hon. Gentleman return again to the matter raised by my right hon. Friend the Member for Knutsford (Mr. Davies)? Will he consider the possibility as a matter of urgency of reopening a permanent British mission in Salisbury to which all people of whatever opinion have the right of access?

Dr. Owen: The Patriotic Front is not de jure. I must make it clear that it is a de facto-like fact of life of which I have to take account.
As for this proposed mission, I have expressed to the House a readiness to look at it. At the right moment, I believe that it would be helpful. If we were able, for instance, to present proposals for the consideration of the Rhodesian people, I believe that at that moment it would be very helpful to have a mission there. That is what happened during the Pearce Commission and the consultation.
When we were coming close to presenting proposals, Mr. Smith suddenly called an election. I am not sure that it would be the most appropriate time to introduce such proposals in an election period. I shall keep an open mind.

Mr. Flannery: Does my right hon. Friend accept that his efforts towards a peaceful and democratic solution are


much appreciated, but is he aware that many of us differ over what he is doing? Does he realise that his efforts to bring in the United States, after the terrible results of intervention by America in Vietnam, are open to a different viewpoint—particularly that which is widely held by the black nationalist leaders, who have repeatedly made it clear that they do not wish to see America involved in Southern Africa? Will the Foreign Secretary take an initiative in terms of Southern Africa which does not demand that America should be involved? Does he not agree that only by taking such a course will he prevent the delaying tactics in which Mr. Smith is engaging by wishing to discuss these matters with America?

Dr. Owen: My hon. Friend must accept that the United States Administration has made clear that it has no intention of putting troops into Rhodesia or in any other place in Africa. There is no question of combatant troops being employed. In so far as the United States Administration is involved in Southern Africa at the moment, that is widely welcomed by the Africans. I know of no major African nationalist leader who does not welcome the responsible attitude and tough stance taken by the present United States Administration on the subject of apartheid, black majority rights and the need for a wider franchise and discussion.
I believe, however, that my hon. Friend is living in the past in talking of United States involvement in Vietnam. Many of those who support the present United States Administration were themselves critical of aspects of the position adopted by the previous United States Government on the subject of Vietnam. Any new Administration must not be allowed to be bedevilled by the sins, omissions or advantages of past Administrations. It must be judged on its merits.

Mr. Hastings: Will the Foreign Secretary accept that the key to success is the preservation of the integrity of the Rhodesian security forces under their present commanders as a strictly neutral force, and that the failure to recognise this could lead to a rapid evaporation of confidence among the European population and, almost inevitably, to bloody tribal war? Will he recognise that there is no other possible body that is capable

of maintaining law and order either during transition or after majority rule?

Dr. Owen: The hon. Gentleman has put a problem that is at the core of the difficulties over the transitional period. General Hickman has made it clear that he sees the Rhodesian defence force as not being a political army but as owing allegiance to any legitimate Government and as a force that would serve any new elected black majority Government. The trouble is that it is not seen as a neutral force. The history of the past 11 years makes it questionable that it is seen as a neutral force. I cannot endorse all the hon. Gentleman said, particularly about the fact that there should not be some change of officers. That inevitably is a fact of life. One should take account of the anxieties of the black nationalists at the continued presence of such a force. This is one of the major problems.
I recognise what the hon. Gentleman said about keeping the confidence of the white Rhodesians during the difficult transitional period, especially if there is to be an election. We are examining this issue closely. I wish that there were easy answers, but we must recognise that these matters lie at the core of the problem.

Mr. Newens: In view of the reply given to the right hon. Member for Brighton, Pavilion (Mr. Amery), will my right hon. Friend make it clear that there is no question whatever of accepting the proposals of Bishop Muzorewa on the basis of the exclusion of the Patriotic Front? Will my right hon. Friend go further and emphasise to the Opposition that the non-acceptance of the Patriotic Front would inevitably lead to further bloodshed and further war in Rhodesia?

Dr. Owen: Just as I have not been prepared to exclude from my consultations Bishop Muzorewa and other nationalist leaders. I hope that nobody will adopt a stance of seeking to exclude the Patriotic Front. I have already made it clear that this issue, which goes to the heart of the differences between the nationalist leaders, can be resolved only by an election in which all of them can go to the people in a future Zimbabwe and ask for their decision. It is easy to set this forth as a principle, but it is a great deal harder, I fear, to achieve it.

Mr John Davies: May I ask the right hon. Gentlemen to clarify one matter which has not been made clear in questions and answers so far in this discussion? Does he make a clear differentiation between any involvement by Britain in military or other terms in seeking to impose a settlement beyond that whish seems more realistic at the moment and aiding the security situation in any interim situation? It is important that he should make that clear
Secondly, will the Foreign Secretary go on to say that there will be no rejection of that aspect in any British involvement, perhaps as part of an international force in ensuring that in the interim period the situation may be safeguarded, and that British participation will play a part, since without such participation any British action is itself suspect?

Dr. Owen: I am grateful for the right hon. Gentleman's comments, particularly for his mention of an international effort. It is an open secret that consideration has been given to ways in which to bring about stability in this period. In regard to British involvement, let me make it clear that we put forward proposals in January that we would be prepared to see a British interim commission in some circumstances. We have always accepted that it might be helpful to put in some administration as an over-structure which would be more acceptable.
The subject of peacekeeping has yet to be decided and no definite decisions have been taken, but one has to take note of the fact that successive Governments have been unprepared to put in troops on the ground. My hon. Friend makes a distinction between putting in troops on the ground to impose a settlement, which is completely out of the question, and putting in troops on the ground in a peacekeeping rôle. This matter would have to be considered on its merits. The United States has ruled out this option. It might be better for the major Powers to stay out of any question of a peacekeeping role. Such peacekeeping operations in the past have been conducted by countries with a clear record of neutrality between the differing parties. These are issues that may need to be considered with great care.

BRITISH LEYLAND (FINANCE)

The Secretary of State for Industry (Mr. Eric G. Varley): With permission, Mr. Speaker, I should like to make a statement on finance for British Leyland.
On 26th May in my statement on the Mini replacement, I said that if progress was sufficient to justify the provision of further funds this summer, I would provide the House with a report by the National Enterprise Board on British Leyland's performance.
I have placed in the Vote Office copies of the NEB's report to me which includes figures on British Leyland's performance up to the end of June. It gives a full account of the key aspects of performance. The House will note that production has been maintained at high levels over the last three months of this period.
The report also gives NEB's considered views on progress towards achieving a radical improvement in industrial relations. It concludes that solid progress has been made, although it emphasises that much remains to be achieved. It recommends that it should be authorised to release further loan funds up to £100 million—subject to the NEB being satisfied at each stage that progress on industrial relations reform is being maintained. The Government accept the NEB's recommendation.
The Government have considered how these funds should best be channelled to British Leyland. The House will recall that, when we debated the subject of British Leyland finances on 3rd August last year, I said that there was a case for all public funds for British Leyland being provided directly by the NEB. I received a recommendation to this effect last summer from the Industrial Development Advisory Board. The Government have not taken a final view on this but have decided that, for this tranche at any rate, British Leyland's requirements should be met from NEB's funds. This arrangement will emphasise the NEB's responsibility for satisfying itself that sufficient progress on industrial relations reforms is being maintained at each stage at which the company seeks to draw on the new tranche.
The House will note that the NEB's report anticipates a further requirement for funds before the end of the present financial year. Tits is, of course, in line with the original expectation in the Ryder Report that a total of £200 million would be needed this year. I shall inform the House when I receive a recommendation from the NEB about the remaining part of this year's requirement. By then the NEB will have reported further to me on its review of British Leyland's forward plans and I shall keep the House informed of the outcome.

Sir K. Joseph: Is the Secretary of State aware that we welcome such improvement as there has been but regard the three months since the strike as a very short period on which to judge progress, and that we shall need to study the NEB report with care?
I have three questions for the right hon. Gentleman. First, now that the taxpayers' money is being spent, is he satisfied that the new Mini will be a more profitable investment than the car that it replaces and also a better investment than a new middle-range model or models? Secondly, does the Government support for the 12-months rule mean that British Leyland will be prevented from moving to a common negotiating date, as it wants?
Thirdly, is the company providing from its own earnings the 50 per cent. of the investment cost set by the Government and endorsed by the company as a condition for contributions from the taxpayer? Without such a contribution from the earnings of the company, it is very hard to justify further money from the taxpayer.

Mr. Varley: The Mini replacement programme and policy are the programme and policy that the British Leyland Board recommended to the NEB and that it accepted. The NEB says that it is certainly better than any other options, and it expects it to be profitable.
The question of the common negotiating date is a matter for further discussions following the arrangements that were agreed after the troubles earlier in the year with the toolmakers, and it remains the objective of the work force of British Leyland and British Leyland management.
The answer to the right hon. Gentleman's third question is that it is a condition that a major part of the investment

programme will have to come from British Leyland, earned from its own profitability.

Mr. Loyden: Is my right hon. Friend aware that the delay in bringing for-ward the long-term options for British Leyland is counter-productive to good industrial relations? Does he not agree that if good industrial relations, about which he is concerned, are a prerequisite for his being able to make a statement on the long-term review, the very industrial relations that he wants to bring about could be endangered by any further delays? I urge him, therefore, to give full consideration to this point.

Mr. Varley: I shall give full consideration to it. I know that delays are un-satisfactory to some people. It was the NEB's decision that it should review the situation further following the troubles earlier in the year. I am pleased that we have been able to go ahead with the first tranche of the £200 million that was envisaged when I made my statement last year.

Mr. Hal Miller: Will the Secretary of State assure the House that he understands the need for confidence amongst those working in British Leyland, those selling the cars and those who will buy them? Will he, therefore, tell the House whether there has been any change from the Ryder plan on which the House originally agreed to the giving of these funds, changes in particular in the organisation of British Leyland and in the financing of British Leyland, to which my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) referred? I did not find the right hon. Gentleman's answer clear on the 50 per cent. question or on the question of the model policy. Are we going ahead on the basis of the Ryder plan or are we waiting for a new plan? Will the House have a full opportunity of debating any new plan which is proposed?

Mr. Varley: The broad plan that was first laid before the House is still basic-ally the policy being pursued by the NEB and British Leyland. Of course, from time to time there will be modifications to it, and when those modifications are agreed suitable steps will be taken to inform the House. The question of organisation is a matter for the NEB. It has not made recommendations to me


about the management or anything of that kind.
I thought that I had made it clear, on the question of British Leyland's own contribution to the investment, that it is still the intention that the bulk of the investment necessary will have to come from British Leyland's own profitability.

Mr. Conlan: If the Government are now satisfied that there will be no further investment from them to finance this project, is my right hon. Friend satisfied that the financial resources of the NEB will be sufficient to finance it?

Mr. Varley: Mr. Varley I am satisfied that there are sufficient resources with the NEB for it to be authorised to pay the £100 million to British Leyland.

Mr. Eyre: Is the Secretary of State aware that one of the essential requirements for British Leyland is sustained successful production? Will he confirm that pay agreements to be negotiated will realistically take account of the need for differentials and incentives—differentials for those exercising skill and responsibility, and incentives by way of a shop-floor bonus for production actually achieved?

Mr. Varley: It is necessary that there should be sustained and continuous production by British Leyland if it is to be the success of the hon. Gentleman and, I think, the whole House want to see.
The question of pay during the period after 31st July is a matter for British Leyland in discussions with its work force. I understand that good progress has been made following the two working groups that were set up after the toolmakers' dispute. But we shall expect the NEB and British Leyland to have in mind the guidelines explained to the House on 15th July by my right hon. Friend the Chancellor of the Exchequer.

Mr. Richard Wainwright: Is the Secretary of State aware that the decision that the £100 million should be made available entirely from the funds of the NEB rather than any new demands upon the taxpayer will give great satisfaction in some quarters, and I hope in many quarters?
Secondly, with regard to the very important matter of the time saved for

future consideration by limiting this allocation to £100 million, can the Secretary of State confirm that the NEB is entirely free to explore alternative courses to the detailed Ryder plan—for instance, massive development of specialist vehicle manufacture rather than re-equipping to try to keep up with other powers on volume car manufacture by all sectors?

Mr. Varley: The NEB, as the agency monitoring the performance of British Leyland, has the responsibility and freedom to explore all kinds of alternatives open to that company. No doubt it will do that.
As to the question of providing all the funds on this occasion from the NEB, I know that, in addition to the Industrial Development Advisory Board, which so advised the Government, the hon. Gentleman has on many occasions expressed the view that that would be the best way to go about it.

Several Hon. Members: rose—

Mr. Speaker: I propose to call the four Opposition hon. Members and the two Government hon. Members who are standing. I hope that they will be as brief as they can be.

Mr. Skinner: Does not my right hon. Friend agree that it would be much better if the car workers were treated as, say, workers in other nationalised industries, such as the miners, ensuring that they have sufficient money over an extended period and not on a short lease, as suggested in this case?
Will my right hon. Friend confirm that it is cosing the Government, and thereby the taxpayers, £10 million a day in grants of one kind or another and tax relief to prop up private industry? Will he see that he does not fall victim to the Tory propaganda from the Opposition Benches and the Tory Press moguls earning £50,000 a year, who suggest that people who are working from nine to five and beyond are not pulling their weight, especially as the Tory Chief Whip talks about its being time they did some work, when he is trying for the whole of every week to get a few Tory hon. Members in the House for a few hours to vote?

Mr. Varley: The method of financing British Leyland has been recommended by the National Enterprise Board. It


wants to see progress on performance, an improvement in industrial relations and the development of the plan. Opinions on all these things have been expressed in this House on many occasions. I am not saying anything new.
When the Government originally decided that it was in the interests of the country to acquire 95 per cent. of the equity of British Leyland, the then Prime Minister made it plain in April 1975 that funds would be made available on the basis of improvement along these lines. I do not think that my hon. Friend, or any hon. Members, need complain about the support that the Government have given to British Leyland—£246 million to acquire the equity of British Leyland, and £100 million on this occasion and a previous occasion, plus the fact that we have given the go-ahead to the Mini programme.

Mr. Emery: Will the Secretary of State tell the House how this £100 million is to be staged and supervised by the NEB? In how many stages will payment be made? Obviously with Lord Ryder leaving the NEB, there is a major void in the continuation of the programme. When will Lord Ryder's successor in British Leyland be known to the public?
On 26th May I asked the Secretary of State whether he would pay particular attention to the profit-making and overfull order books of the successful lines of British Leyland and press for these to be maximised. I found his answer unsatisfactory on that occasion. Is he taking any action on this matter?

Mr. Varley: The hon. Member has referred to the more profitable enterprises of British Leyand. It is the view of both the company and the NEB that everything should be done to make these enterprises more profitable—the bus and truck, and special products divisions. I hope that this is the case and that further progress will be made.
I have made a statement that Lord Ryder's successor will be Mr. Leslie Murphy, who will take over on 1st August. At present he is the Deputy Chairman of the NEB, and he has already been very closely associated with the British Leyland programme.

Mr. George Rodgers: This statement is obviously very welcome. Does my right

hon. Friend think that sufficient tribute has been paid to the trade unions and the work force generally for the areas of co-operation that have been achieved and the changes that have taken place in the working and practices of the company? Will he agree that there is a distinct danger that if the Government play this card too often—dangling funds in front of the work force but suggesting that these will not be paid unless certain severe conditions are met—this will prove counter-productive? Will he make a statement on the release of funds to the bus and truck division in Lancashire for the provision of a foundry that was intended in the original programme?

Mr. Varley: A statement was made last week about the foundry and the bus and truck operation in my hon. Friend's constituency. I shall see whether any further information can be made available to him.
On the question of the way in which the funds are allocated to British Leyland, I think I made the position very clear in the answer that I gave to my hon. Friend the Member for Bolsover (Mr. Skinner). It was decided two years ago that the money should be made available in this way. No amount of public money in itself can secure the future and success of British Leyland. It depends on the overall operation and whether production is sustained. I agree that progress over the last few months has been very encouraging and I want to see that progress continued, not just for three months but over the whole period of British Leyland's operations.
I am sorry but I did not answer the first part of the question put by the hon. Member for Honiton (Mr. Emery). He asked about the £100 million and whether it would be paid in stages. What I have done today is to authorise the payment of £100 million. It is for the NEB to decide how this money goes into British Leyland. I understand that the Board will make funds available as necessary. Any sum over £25 million must have my approval.

Mr. Ian Lloyd: Is the Secretary of State aware that a leading designer in the motor vehicle industry who saw a film on computer numerically controlled machine tools that was shown to the


Select Committee on Science and Technology said that it would be seditious to show such a film to British Leyland? In the light of that, can he confirm or deny the allegation that because of the unions' unwillingness to accept modern tooling, British Leyland is being saddled with a design of engine which is 20 years out of date?

Mr. Varley: I do not know of this incident and if the hon. Member could let me have details I shall look into it. British Leyland needs the £100 million, as I understand it, for modern equipment and investment so that its engines will be just as good as those of any others of the volume car producers.

Mr. Alan Clark: Is the Secretary of State aware that the majority of British Leyland workers are engaged not in making the Mini or its replacement but in making obsolete models in the middle range, for which no design is on the books and no significant funds have been allocated for development? Is he not leaving it rather late to explain this predicament to the House and to seek a further enormous tranche of taxpayers' money to cover such a problem?

Mr. Varley: Resources are being made available to British Leyland in accordance with its developments and the advice received from the NEB. I do not accept that British Leyland's models are obsolete. What we are talking about is a company which did achieve profitability

but which can do better—[Interruption.].
If the hon. Member is not interested in the question, I shall not reply.

Mr. Michael Marshall: Will the right hon. Gentleman confirm that this is taxpayers' money, whether it is money from the Government or from the NEB? Does the Secretary of State realise that he cannot divorce the future of British Leyland from the Government's commitment to Chrysler? When will he come to the House with a statement on Chrysler, and when will he go in to bat again for his muddle-headed colleagues in the Cabinet and get them off the hook for subsidising both sides of a competitive industry?

Mr. Varley: The question of Chrysler does not arise out of this statement.

BILL PRESENTED

TOWN AND COUNTRY PLANNING (AMENDMENT) No. 2

Mr. Michael Shersby, supported by Mr. F. P. Crowder, presented a Bill to require local authorities to prepare and publish feasibility studies in connection with certain developments; to consult with persons likely to be affected by such development; to provide for local polls in respect of development proposals in certain circumstances; and for connected purposes: And the same was read the First time: and ordered to be read a Second time tomorrow and to be printed. [Bill 177.]

Orders of the Day — FINANCE BILL

As amended (in the Committee and in the Standing Committee), further considered.

Clause 22

ALTERATION OF PERSONAL RELIEFS

4.38 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett): I beg to move Amendment No. 97, in page 14, line 8, leave out '£,270' and insert '£1,295'.

Mr. Speaker: With this we shall take Government Amendments Nos. 98, 99 and 100, and the following amendments:

No. 122, in page 14, leave out lines 19 to 23.

No. 118, in page 14, line 22, leave out from 'than' to end of line 23 and insert:
'£1,085, £735, £1,555 and £1,010, respectively'.

No. 123, in page 14, leave out lines 30 to 33.

No. 119, in page 14, line 33, leave out '£420' and insert '£350'.

No. 125, in page 14, line 33, leave out '£420' and insert:
'the level provided for in this subsection'.

Mr. Barnett: This group of amendments seeks to increase the main personal allowances. The cost is similar to the cost of the amendments that were carried in Standing Committee—nearly £500 million.
The difference is that on this occasion we have tilted the allowances in favour of married men rather than single men. We have also added an increase in the additional personal allowances which I hope will be acceptable to the House. This is in line with our acceptance of the Finer Committee recommendations that the additional personal allowance should make the single person's allowance in the case of a single parent family the same as that of a married man. The

effect is to tilt the allowances in favour of the married person.
After the Budget, the way that the allowances worked resulted in the married person's allowance being about 52 per cent. higher than the single person's allowance. After the amendments made in Committee, it would have been 48 per cent. higher than the single person's allowance. Now it is 53 per cent. higher. Under the DHSS rules it is 60 per cent. higher than the single person's allowance.
Justification of any particular level is difficult, but the research carried out by DHSS economists indicates on the expenditure requirements of familes on dfferent bases of composition that there is a need to have the married person's allowance 60 per cent. higher than the single person's allowance. I do not suggest that this is worked out on any scientific basis.
It is difficult to specify what the differentiation should be between the single and the married person's allowance or the single and the married person's social security benefits. But in a year such as this, when child tax allowances of necessity could not be increased whilst we were phasing them out, it is sensible at least to maintain the ratio of married to single person allowance rather than to decrease the percentage.
I hope that the amendment will be acceptable to the House. It is on that basis that I commend it. Together with increases in allowances in the Budget, it will take approximately 1,210,000 people out of tax who would otherwise have been in tax.
I turn now to the indexation amendments, which we have an opportunity of discussing in this group. Raising the tax threshold is a major objective of the Government, but it is not and cannot be the only objective in tax policy. With the limited resources available, at whatever level we want to have the borrowing requirement we have difficult choices to make. We must decide whether to raise the tax threshold or to reduce the basic rate, whether to have a reduced rate band, whether to use the available resources for increased benefits, or one thing or another. The raising of the threshold should have a high priority, but I do not agree that we should automatically accept that personal tax allowances must of necessity be raised regardless of what else is happening.
The indexation amendments that were carried in Committee give both the Government and the House a choice. They indicate what would be required by increasing personal allowances in line with the Retail Price Index whilst at the same time leaving the House free to decide whether there should be such an increase in personal allowances. But we have amendments before us that would seek to remove that opportunity and leave the indexation of personal allowances automatic. Because the choice remains, and given that it is our intention to raise the tax threshold as much as we can, we did not seek to ask the House to delete the amendments that were carried in Committee.
Most advocates of indexation accept that one cannot stop at income tax alone. I know that that is the view of the bon. Member for Blaby (Mr. Lawson). Indeed, he has never suggested otherwise. The hon. Gentleman would want to index rather more than income tax. But it is not clear where the advocates of indexation would stop or why.

Mrs. Audrey Wise: rose—

Mr. Barnett: I am coming to my hon. Friend's view. The hon. Member for Blaby wants to index to help people at the lower end of the tax threshold—those with the lowest possible levels of income. But he recognises, as does my hon. Friend the Member for Coventry, South-West (Mrs. Wise), that we cannot do that in a broad-based tax system. We cannot increase the tax threshold and help only those at the bottom end of the tax scale. That is why the increase in personal tax allowances and the raising of the threshold are so costly in terms of lost revenue.

Mrs. Wise: Does my right hon. Friend accept that the raising of the tax threshold nevertheless comes nearest to concentrating help on those at the lower end and that that is the way to minimise the spillover into the higher bands?

Mr. Barnett: I shall be coming to my hon. Friend's arguments. They are serious and I want to deal with them. I agree that we want to raise the tax threshold as much as we can, but it is not possible to take so narrow and simple a view of how to use the limited resources available.

I want to deal precisely with that kind of problem.
I share my hon. Friend's objective in wanting to help those who are paying tax at about 40 per cent., including national insurance contributions, on incomes below the supplementary benefit level. I know that is my hon. Friend's objective, but that is not the simple objective of the full indexers. We must discuss that matter. My hon. Friends the Members for Coventry, South-West and Birmingham, Perry Barr (Mr. Rooker) want a very narrow relief, but they have in fact widened the debate much further than that. I am sure that in so doing they have been delighted to get some of the support that they have had from other sources. Therefore, I want to deal with indexation generally—how far we should take it and where we should stop.
Most of those who are in favour of indexation would certainly agree on the need to index specific duties—indirect taxes which are not ad valorem. I know and understand that that is the view of the hon. Member for Blaby. I hope that I may be forgiven for saying that I find it a trifle strange that those who are in favour of indexation and increasing personal tax allowances up to the full Retail Price Index could not bring themselves to support the increases in, for example, petrol and oil duties. I cannot help but suggest that seems a trifle odd.
I also find it difficult to understand why it is clobbering the motorist to increase petrol duty, as was suggested in the Budget, but it is not clobbering the motorist to do it by indexation. Apparently that is all right. Somehow that does not matter. It will not be considered an anti-motorist proposition. It will not bother the rural motorist as long as it is indexed. I make that as an aside. I do not wish to embarrass anybody—certainly not those who vote with me some of the time. I hope that no one will take offence at that brief aside.
We should not underestimate the difficulties inherent in the problem of indexing specific duties. There are substantial administrative and other problems, which I hope we shall have an opportunity of discussing on another occasion. But it is not only specific duties that we should need to index if we were to move along this path. We should need to index the vehicle excise duty. Would the advocates


of indexation advocate indexing capital transfer tax and capital gains tax? I am not sure whether the doyen of indexers, Mr. Samuel Brittan, taught the hon. Member for Blaby, or whether it was the other way round. Knowing both gentlemen, I am not too sure that either one of them is easily taught. The journalist to whom I am referring at least recognised that the indexing of capital gains tax involved some complication. That is recognised by those who have sought to carry amendments to the Finance Bill from time to time.
We are looking ac it and I hope that we shall be able to do something in that direction in the future. However, does one stop there or does one go on to the indexation of loans to the Government and private mortgages? Is that the suggestion of those who are in favour of full indexation?
It seems to me that the consequences have not been thought through fully by those who are full indexers. I recognise that it is possible to have indexation of the tax system without following it through to other areas. We already have indexation in a number of areas. That form of indexation is generally accepted, but not always and not by everybody. For example, we index social security benefits. That is generally acceptable. We index public service pensions. That is not quite so generally acceptable but it was carried through by the Conservatives when in office and has not been opposed by them in opposition. I therefore presume that it is generally acceptable.
Public expenditure was previously fully indexed. It was done in value terms and indexed in line with whatever was required. It is now partially indexed in the sense that we impose a cash limit which makes an assumption about inflation. If inflation exceeds the assumption the recipient cannot rely upon receiving more. We have indexation of corporation tax through the use of stock relief and 100 per cent. capital allowances.
We have no indexation of wages. We did once and it was not a happy omen for full indexation. I assume that even the most ardent indexers would not suggest that in a period of free collective bargining it would be possible to have indexation of wages. We cannot have full indexation at least until we wish to return to a more formalised incomes policy. I

doubt whether anyone is arguing for full indexation including the indexation of wages, with the possible exception of the hon. Member for Cornwall, North (Mr. Pardoe), who might be because he is in favour of a form of statutory incomes policy.
If it is accepted that one cannot index everything, my hon. Friends must understand that if one indexes only part of the whole system, something has to go. The part that is un-indexed would have to go.
Of course the hon. Member for Blaby takes a rather broader view of indexation than do my hon. Friends. He and others in the Opposition seek to have indexation as a means of squeezing public expenditure. That is their policy. They do not apologise for it but it is not my hon. Friend's policy.
I must stress to my hon. Friends that that is the consequence. They must understand that. It is the consequence of believing that first and foremost, regardless of what happens in the economy, there must be a rise in the threshold. If there is insufficient growth in the economy to achieve that, for example, if there is negative growth, something else must go, and that something else would inevitably be public expenditure.
My hon. Friends say rightly that they want to raise the threshold so that people on supplementary benefit levels do not pay tax at all. That would not be much consolation for men and women who are relieved of paying tax at the lowest end of the income scale, who would then find that, because of the alternative cuts in transfer payments, they are net worse off. I believe that that is what would happen if the Opposition were the Government.
I know that my hon. Friends have the best motives and I agree with their basic idea. However, what they seek to do would put a weapon in the hands of the Opposition. If it had not been for the fact that the hon. Member for Blaby was not able to carry his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) with him and had to insert an amendment which left the matter open, we should have had automatic indexation. My hon. Friends must accept that. What they would have done would not necessarily have achieved the objectives which they and I want. In certain circumstances they could have the reverse effect.
What is now suggested is that we should have partial indexation with the choice not to have it. That is what is in the Bill as it stands. We have partial indexation of part of the income tax personal allowances which the House can choose not to have by order.
We all accept that there cannot be full indexation. We have to ask whether partial indexation is helpful or otherwise in the fight against inflation.

Mr. J. Enoch Powell: Mr. J. Enoch Powell (Down, South): No.

5.0 p.m.

Mr. Barnett: The right hon. Member for Down, South (Mr. Powell) always takes a simple view about these matters. I am not suggesting that he is a simple man. I do not believe that the position is quite so clear. I suggest that in the case of partial indexation the answer is not proven. That doyen of indexers, Sam Brittan, unlike Milton Friedman, said that international data did not prove the case either way. That is why I am a semi-agnostic on this issue.
I have thought about it. In some instances I can see that indexation of some areas would not have any adverse consequences on inflation. Indexation of other areas—wages, for example—could be positively harmful, as shown by our own experience and that of many other countries. Equally, if we indexed all direct taxation, all indirect taxation and public expenditure, I am not sure that it could be argued that that would not be inflationary. I think that it would be. Indeed, one of the reasons why we have had the level of inflation was that public expenditure was not subject to cash limits.
My view is that the more one looks at indexation generally, the greater is the case against dogmatism. The hon. Member for Blaby has been outspoken and persuasive, at least of his own Front Bench, on this question. If one accepts that one cannot index everything, and we have partial indexation subject to not having it at all by order, we get what the right hon. Gentleman has called "truth in taxation".
I hope that the House will accept that neither full indexation, nor partial indexation, nor anything else can provide

an automatic protection of living standards. I do not suggest that those who have advocated either partial or whole indexation have suggested that it would do so. I know that they have not. But the impression inevitably left in the headlines has been that indexation somehow would at least maintain the real net take-home pay.
It might do so in line with inflation, as set out in the Bill as it stands, but that is not the same thing. It depends on what one has to do in order to offset it. if we cut transfer payments, for example, the net result might well not be to index real net take-home pay as it affects a particular family. I agree that the case for automatic indexation is massively overstated. One of the problems which led to these amendments in Committee is the confusion about the need to reverse the trend of recent years from direct to indirect taxation and the need for indexation. It is that which led my hon. Friends in Committee to support the idea of indexation. I understand that they felt the need to do so because in recent years we have not raised the tax threshold and have thus left low-paid workers paying income tax.

Mrs. Wise: My right hon. Friend is correct, but that is different from his earlier statement. We have not supported the indexation of these thresholds because we object to a transfer from direct to indirect taxation. We object to a transfer from company taxation to individual taxation and from the better-off to the worse-off individuals.

Mr. Barnett: My hon. Friend cannot have it all ways. She cannot index direct taxation without helping the highest paid as well as the lowest paid—she knows that that is the case. I do not object, because I think that the trend in recent years of a switch to direct taxation has squeezed differentials to a degree that is generally unacceptable. But what my hon. Friend seeks to do is pretend that she was helping only those at the lowest end of the direct tax scale and no one else.

Mrs. Wise: It is not true.

Mr. Barnett: If my hon. Friend pretends that she can do so, she is doing people a disservice.

Mr. J. W. Rooker: Surely my right hon. Friend is trying to have it both ways by seeking to say that the only way in which the higher paid get help is through the spin-off effect of raising thresholds. The effect of raising the thresholds in the Budget was that the higher paid took it all. That is what we objected to. The higher paid, through the Budget, were to benefit by more than the rate of inflation of last year. That is why we were forced into the position in which we found ourselves in Committee, supporting the people at the lower end of the scale.

Mr. Barnett: My hon. Friend cannot have it as easy as that. The cost of raising the thresholds at that end would have given only a tiny figure to those at the lower end of the scale. The Opposition amendments, which my hon. Friend helped to carry in Committee, cost £500 million. The reliefs we gave in the Budget were nothing like that figure. On top of that, the extra tax put on the higher-paid in the last three years has been very substantial. To try to pretend that one can reduce direct taxation only for one section of direct taxpayers is to be misleading.

Mr. Rooker: On 7th April my right hon. Friend was asked how much of the tax cuts of £2·2 billion proposed in the Budget would go to people earning over the average wage of £80 and how much would go to those earning under it. The answer was that those earning the average wage or under would receive a total of £796 million while those above it would receive in total £1,454 million. Thus, those earning more than the average wage were getting twice as much in total as those earning under the average wage. There was, therefore, more than enough money to spare for the changes that my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I sought to bring about.

Barnett: My hon. Friend has made my case for me. What he did in Committee—I am not criticising him, because I. too, want to raise thresholds—was to give 30p per week to the average working married man and nearly three times as much to a man with an investment income on the highest rate and to the higher paid. I do not blame my hon. Friend for it. It is inevitable in a direct

taxation system. One cannot avoid it. My hon. Friend is right to quote back at me my Answer of 7th April. That is what happens when one raises thresholds and higher rate bands.

Mrs. Wise: But is it not true that an alteration in the tax thresholds helps the low paid more than a reduction in the standard rate? Is it not true that the £1 billion we have spent since the Finance Bill Committee started has gone more to the low paid, in contrast with what would have happened under the Chancellor's original proposal for a reduction of 2p in the standard rate?

Mr. Barnett: My hon. Friend is right, out she has confused her questions. She asks me whether it is not the case that the lower paid get more under the proposals she supports. The answer is that they do not—the higher paid get more.

Mrs. Wise: No.

Mr. Barnett: My hon. Friend must not confuse her own questions and also try to confuse my answers. She knows that I am easily confused in these matters.
I am making a simple point. I agree with my hon. Friends about the need to raise the thresholds. All I am seeking to explain is that if one wants to raise tax thresholds and cut direct taxation, which she and I want to do, one must recognise the consequences. I am surprised that my hon. Friends have taken exception to what I have said, because what I have said cannot be disputed. I always try to state the position clearly, and I hope that I have done so today.
I am not trying to misinterpret my hon. Friend's views, because I know them. The trouble is that they have taken a narrow view of what can be done with indexation, and because of that they were nearly taken for a ride by the hon. Member for Blaby. It was the right hon. and learned Member for Surrey, East who would not let that happen. He is not in favour of indexation, so he compelled his hon. Friend to put in the provision that this cannot be done by order.
I must say to the right hon. and learned Member for Surrey, East that all this talk about honesty in taxation is, to say the least, a trifle misleading. The indexers may not intend this, but the implication is that if there is automatic indexation, there is truth in taxation. One can have


untruths in a variety of ways. One meets them frequently in public life. I, for my part, have always tried to be honest with the House whenever I can—which is all the time, I hasten to add.
The really dishonest redistributor by stealth is inflation. That is the real curse. One indexes personal tax allowances and then provides that one does not have to do it by order. There is no difficulty in that. Everybody knows it. There are no secrets in these matters.
One has to be careful. Automatic indexation solves nothing. Unless the amendments are carried, the position will be left open. The position will be—if, as I hope, the House does not accept the indexation amendments—broadly as set out in the Bill as printed. There are one or two technical amendments which I hope the House will carry, but the net result of the indexation amendments will be that there will be an automatic indexation of personal tax allowances, but the House will have the opportunity of not doing that by order.
I can see the right hon. and learned Gentleman looking at me a little oddly. I hope that that is not because I am looking odd but because the Bill is a little obscure as to precisely how it will work, As I read it, in next year's Finance Bill —or by order at some time—the House will have an opporunity to decide what the personal tax allowance should be. We shall not be left in a situation in which personal tax allowances rise willy-nilly.

Mr. Powell: The right hon. Gentleman, who reads so easily the mind of the right hon. and learned Member for Surrey, East (Sir G. Howe), has not in this case succeeded in reading mine. The right hon. Gentleman is not accurate in saying that it is the House that will have the choice, because no one, except someone sitting on the Government Front Bench, will have an opporunity to propose a motion that will increase taxation. What the right hon. Gentleman is saying is that the Government, if they dare, will have that opportunity. That is different from saying that the House will have the choice, and therein, I admit, there is some distinction between this and the case of proportional representation.

Mr. Barnett: The hon. Gentleman is right, but the House will ultimately have the right to do it.

Mr. Powell: No.

Mr. Barnett: Of course it will. With respect, the Government—as we have seen in the recent Finance Bill Committee—can propose, but the House disposes. This is something with which the Government will have to live. I hope that we shall continue to have independent Back-Bench Members. I hope, too, that those on our side of the House will always agree with me. I am putting forward such obviously sensible proposals that I am surprised they do not agree with them. Although the right hon. Gentleman is strictly accurate and it will have to be the Government who put down the motion, it will not be the Government who will decide whether it is carried. That will be decided by the House. That is how the Bill stands at present.
5.15 p.m.
I recommend that the House accepts the clause as it stands for two reasons. First, it will give the House and the Government the opportunity to decide at a later stage what should be done. Secondly, it is our intention to raise the tax thresholds as far and as fast as we can.

Sir Geoffrey Howe: Although the House might scarcely have thought it after listening to his speech, the right hon. Gentleman has been explaining why the Government have agreed to accept the amendment made to their Finance Bill in Committee upstairs. The right hon. Gentleman appeared to have considerable difficulty in convincing his hon. Friends below the Gangway that he was right to do what they told him to do.
I am not sure to whom the right hon. Gentleman was addressing his remarks when he referred to "some of those who sometimes vote with me". I am not sure whether he was referring to his hon. Friends below the Gangway or to his hon. Friends on the Liberal Benches. One can understand the growing uncertainty of the Chief Secretary about the fate of the Liberal votes on which he depends, because of the increasingly frequent noises that emerge from Rochdale about the pact that exists. Indeed, I am beginning to wonder whether at the beginning of public


business each day in the House Mr. Speaker should not call out the words "Lib-Lab pact" to evoke a cry from the Liberal Bench "Tomorrow, Sir" so that we can consider this anxious matter from day to day.
Behind all the words that the Chief Secretary has uttered one can detect an important issue and an important debate. I make no apology for repeating what we are talking about, which is the case for truth in taxation, because although the Chief Secretary made an attempt to explain to the Committee upstairs just how every citizen of the country understood very clearly what the Government had done to the tax burden by not raising the tax threshold, at a time of inflation I doubt whether that is the case, and I consider it worth recapitulating exactly what has happened.
Between the last Conservative Budget in April 1973 and this year's Budget, the total increase in the burden of income tax imposed on the people of this country amounts to £6,600 million. Of that sum, £2,500 million has been imposed by this House at the invitation of the Government, with its eyes open, by a direct and explicit increase in the tax rate from 30p to 35p. The balance of £4,100 million is higher taxation that has been imposed by stealth, without explicit resolution of the House of Commons, and it is that about which we are talking in these debates today. Of that figure of £4,100 million, £600 million has been extracted from those paying tax under the higher rate bands, and £3.500 million has been extracted in higher taxation through the failure to raise personal allowances in line with inflation.
This Budget, which the Chancellor presented as a tremendous tax-cutting Budget, cuts taxes by £2,200 million, and when the House finishes with it today will cut off the same figure as the Government were proposing to cut when the Chancellor started with it, but he has had to reshuffle the pack to some extent. A sum of £500 million is due to the reduction of 1p in the standard rate, and £1,700 million of the tax cuts introduced by this Budget are due to improvements in personal allowances.
The Chancellor of the Exchequer originally improved personal allowances by £1¼ billion. In Committee, to the diminishing enthusiasm of his colleagues,

the right hon. Gentleman was required to do so to the tune of a further £450 million. Personal allowances have been improved by £1,700 million in this Budget, but the reduction in the amount of taxation imposed without explicit consent of the House amounts to less than half of that which the Government have taken away by stealth and by their failure to raise allowances in line with inflation.
That is why truth in taxation is important. By failing to keep personal allowances in line with the dreadful ravages inflicted by inflation, the Government have extended the range of disincentives and deepened the poverty trap. Social benefits have risen with full indexation while personal tax thresholds have not. Therefore more people are moving into the band where their earnings in work hardly exceed their earnings out of work.
By failing to raise the higher-rate tax bands, the Government have destroyed post-tax differentials dramatically. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) said that the Budget did more for those on the higher rates, but it gives only a fraction of what would be necessary to restore these people to their 1973 position. In order to return to the equivalent thresholds for upper tax bands, the top rate, instead of being reached at £21,000 a year as at present, would not be reached until £39,000. That is a measure of the damage done by the failure to raise higher-rate tax bands in line with inflation.
As the right hon. Member for Down, South (Mr. Powell) pointed out, the real thief is inflation. It is the promoter of this increased burden of taxation and we are angry because, due to the Treasury's failure to change the tax system in line with inflation, the Treasury itself becomes the main body to profit from the inflation that it has failed to check. The House should feel quite entitled to impose the indexation obligation on the Government.
The unauthorised, unintended and unknown increase in taxation facilitates an increase in the burden of public expenditure without a requirement upon the Government to come before the House. When the Chief Secretary warned his hon. Friends below the Gangway to think twice before supporting the Liberal amendment, he was telling them to beware of removing the engine for the


promotion of higher public spending which they and the Government have enjoyed. That is another reason to support the Bill as amended and to provide for truth in taxation.
As an increasing number of people begin to understand what is happening and see the extent to which taxation has been taken without the authority of their elected representatives, they ask why, if the Treasury is cheating in this way and taking tax for which it has no authority, they should not follow the same tax morality. This also has an effect on the negotiation of pay agreements. If people know that improvements in pay will lead to uncovenanted extractions of their money, it is much more difficult to expect them to conduct their pay bargaining on a responsible basis. They are bound to consider their net pay when we have the tax rates to which we have become accustomed.
This is not the only area in which the failure to take account of inflation in the tax system has led to injustice. Can the Chief Secretary give the figures that the Minister of State was unable to give when we discussed the indexation of capital gains tax? I understand that the yield of capital gains tax is about £330 million. In our two previous debates in which it was suggested that we should provide for indexation, we were not told the Government's estimate of the cost of doing so. The hon. Member for Cornwall, North (Mr. Pardoe) told us last month that if indexation of capital gains tax were accepted, it would cost about £250 million of the total yield of £330 million. If that is true, it is an important illustration of how the failure to take account of inflation on the tax system is having undesirable effects.
We support the Bill as amended. It became acceptable only because of the amendment carried in Committee. The amendment was moved by my hon. Friend the Member for Blaby (Mr. Lawson) and it is right that the House should pay tribute to the energy and tenacity with which he has pursued his demand night after night, year after year, on tax after tax.

Mr. Joel Barnett: The hon. Gentleman has been here for only three years.

Sir G. Howe: It is a formidable achievement in that time.
If the Liberal amendment were carried, the whole change would become unacceptable. The Liberals have a curious approach to this subject as to so many others. The hon. Member for Cornwall, North voted for the amendment in Committee, but now, with that luxurious capacity for changing his mind, it seems that he will vote to delete it.
In his rather long lecture about indexation, the Chief Secretary was going far beyond and beside the point. This is not an amendment dealing with across-the-board indexation. It does not mean an acceptance of the case for indexation on an automatic, universal basis. There is some force in the Chief Secretary's argument that a move in this direction could be seen as an acceptance of inflation and a weakening of our determination to secure its conquest. In a rather curious series of mixed metaphors, the right hon. Gentleman described the case as not proven and himself as an agnostic. That later became semi-agnostic and we were left with a picture of someone rather like a lapsed Scottish juryman. The Bill is acceptable because it embodies the minimum changes necessary to prevent the thief inflation operating on this part of the tax system as a means of taxation by stealth.
There is the power to vary the effect of the clause by the introduction of a Treasury order. With the consent of the House, the Treasury may impose additional taxation by varying the otherwise automatic effect of the clause. The right hon. Member for Down, South said that this was a curious and undesirable situation, but I suggest that it is no more curious and undesirable than the situation that has developed within the tax system. For example, Back Benchers cannot increase VAT as a means of paying for lower direct taxation. It is for the Government and the Treasury Bench to make proposals of that kind, and it will be likewise clear that, if the automatic change operates, it will be for the Treasury to make proposals to take away, at least openly, that part of the money which has been saved by the Bill now before the House. In other words, the Treasury will be able to act to claw back the consequences of the amendment, but it must do so—as in every


other case where it imposes taxes—openly, plainly, above board and explicitly. That, surely, is a major improvement.
5.30 p.m.
There are, of course, other areas in relation to which the same kind of argument can be advanced. It is right to say that some indirect taxes, such as VAT, are already designed in such a way as to collect higher yield as inflation takes place, and there are quite different and difficult problems if the same principle comes to be applied to specific duties.
There are many other fields in which the same kind of argument can be discussed, from dog licences to many curious taxes about which the Chief Secretary knows more than I do. Probably the most important area in which the same principle should be applied is that of the thresholds for higher rates of taxes. It must surely be wrong, when this House of Commons has voted this year to fix at £6,000 the point at which higher rates of tax start, that unless special action is taken by the Government, always reluctant, to raise that year by year, tax can be increased on the higher rate taxpayers without any conscious decision at all by this House of Commons.
The principle which Labour Members below the Gangway have rightly asserted to prevent the imposition of taxes by stealth on standard rate taxpayers, unless the Treasury consciously seeks to get approval from the House of Commons, and to secure the upward movement of tax thresholds for standard rate taxpayers, is one that must surely be applied to other tax bands and other tax thresholds throughout the tax system.

Mrs. Wise: It should be made quite clear that the objective of those of us below the Gangway is to protect the lowest paid, and only the lowest paid.

Sir G. Howe: That has been the objective, but the principle which hon. Members below the Gangway have asserted is one to which we can all subscribe. It is a principle which says that the lowest paid taxpayers should not be required to pay taxes which this House of Commons has not imposed upon them and should not be required to pay taxes imposed by stealth. If the Treasury or any Government wish to impose higher taxes on the

present tax threshold for the lower-rate taxpayers, the Government should come before this House of Commons and say what they are doing plainly and openly and impose that tax explicitly.
If that is a sound principle for lower-rate taxpayers, I see no reason why it is not an equally sound principle for taxpayers at every level in the income band. If this move towards truth in taxation is right and proper, as it is, for the lower paid, about whom the hon. Member for Coventry, South-West (Mrs. Wise) is concerned, it must be equally valid and equally important for those paying higher rates of tax.
It is on that basis, and not as part of some great monument to be erected in honour of the Chief Secretary or any of those associated with these amendments, to be labelled "indexation", but simply as a fundamental move towards truth in taxation, that we are delighted to accept the Bill in the form in which it has returned to the House, amended in Standing Committee.

Mrs. Barbara Castle: We have heard a great deal today about truth in taxation. I want to make a plea for a little more truth about a strange new hybrid in our social policy, part tax relief and part social benefit. I refer, of course, to child benefit.
We welcome the fact that the Government have accepted an amendment which will increase the personal allowances, and I particularly welcome the adjustment that the Government have made, or are making, in their own amendment to tilt those increases in favour of the married couple as against the single person. But this House must face the position in which we now find ourselves over child benefit as a result of the compromise to phase it in over two years. What that means is that this House has inhibited itself from increasing the child tax allowances. They are to be phased out over two years and child benefit is to be phased in.
Where do we stand, therefore, on the whole issue of family support? The children have received nothing in this Budget, and nothing in the amendments that we are being asked to accept this afternoon. The child tax allowance section of child benefit has been frozen


and is not covered by the successful agitation of my hon. Friends. The benefit side of it is not indexed and is not even governed by any rules or intentions to keep it in line with what would have happened if this House had been free to increase the child tax allowances.
I congratulate my hon. Friends on their victory in the Standing Committee for increased personal allowances, but I point out to them that that involves, as has been said, a cost of nearly £500 million. What that means is that with this addition to the increases in personal allowances in the Budget first introduced by the Chancellor, this House is in the process of agreeing to make available a total of £1,390 million a year in increased personal allowances for childless couples and the single wage earner.
But what are we going to do for the children of families? As I have already said, there will be nothing at all this year for them. In April 1978 we shall be devoting to the children of this country another £300 million. We all welcome the Government's announcement about increasing child benefit next April to £2·30 a week for all children, including the first, but the very small amount involved for children compared with the new increased level of provision for tax allowances is something that no civilised society ought to tolerate.

Mr. Rooker: In order that we may get the record clear, will my right hon. Friend appreciate that the increase in the personal allowances attained in the Standing Committee came from and out of the £1 billion set aside for the 2 per cent. reduction? It is not in addition to that. We have only changed the emphasis, and we have now arrived at a position in which there will be smaller personal allowances than we tried to get and a penny off the basic rate. There is no argument, as I see it, about the child benefits. We were not able to do anything in Committee on that. I hope, therefore, that my right hon. Friend will not admonish us too much.

Mrs. Castle: There must be something about me that makes people feel that am always admonishing when I am merely arguing. Perhaps it was the long months of dealing with the Chief Secretary when I was in the Cabinet that permanently soured my normal kindliness.
My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) is right in saying that the increased cost has been covered by the reduction in the rate of tax. I accept his priority in choosing to put something on personal allowances rather than reducing the rate of tax, but that does not alter the comparison in the figures of what we are to spend on personal allowances for the single person and the childless couple, compared with next April's increase in child benefits. I am not suggesting for a moment that my hon. Friend the Member for Perry Barr wanted to do this at the expense of child benefit. I am merely trying to point out the present provisions of the Bill.

Mr. Kenneth Clarke: Since the right hon. Lady has made her case so overwhelmingly that if one index-links the various tax allowances for the sake of families with children, one must also index-link child benefits, does she recall that as Secretary of State she resisted the index-linking of child benefits two years ago? As she was then responsible for resisting what she now sees as logical and essential in a civilised society, does she now see any case for resisting the index-linking of child benefits by her right hon. Friends on the Government Front Bench, now that tax allowances are to be indexed?

Mrs. Castle: If the hon. Gentleman had been able to contain his party political spite a little longer he would have found that I was coming exactly to that point.
We are now in an entirely different situation. Contained in an amendment to the Bill, which we are being asked to accept with the Government's blessing, is the first-time proposal partially to index personal allowances. I accept that this is not automatic indexation, but the whole purpose of putting it into the Finance Bill was to create a bias at every Budget time in favour of increasing the personal allowances. There would be no point in asking for this change otherwise. It is intended to make it more difficult for the Government not to index-link personal allowances. The change is as follows: under the child benefit proposals one cannot include an indexation of child tax allowances, therefore the case becomes overwhelmingly strong to index child benefits. I urge on my right hon. Friends the need for caution—

Mr. Nick Budgen: rose —

Mrs. Castle: I shall not give way until I have been allowed to deploy my arguments for a little longer. Caution is necessary on the proposal for indexation of one section of our social provision. The case for including child benefits in automatic uprating now becomes unanswerable.

Mr. Budgen: rose—

Mrs. Castle: The hon. Gentleman is trying to make me incoherent, and that is not difficult, so I shall continue my argument for a little longer.
The right hon. and learned Member for Surrey, East (Sir G. Howe) today made his usual play about taxation by stealth as a result of inflation and refusal to adjust personal allowances. Right hon. and hon. Gentlemen opposite are always obsessed about taxation by stealth. We should all be arguing that one can have other examples of theft by stealth, such as failure to index social benefits. One could have an inverse form of taxation by stealth in exactly the same way. One of the great achievements of the present Labour Government was to index the major social benefits under the legislation that I carried through the House, which provides that pensioners, widows and others are automatically protected against inflation year by year.
5.45 p.m.
I was, of course, in favour of including child benefits in that automatic up-rating, but I was not able to persuade my right hon. Friends at that time. I am now saying that the case has become unanswerable. It is intolerable that we should not even include child benefits in the automatic annual uprating of other social service benefits. I say to my right hon. Friends that even that is not enough at this stage because over the years the level of our family support has been falling behind. The right hon. and learned Member for Surrey, East gives us moralistic lectures but, good heavens, inflation was allowed to devalue family support under Conservative Governments. I pay tribute to the present Government that at least the increase in child benefits to take effect next April will take the joint figure of family support under child benefit and tax allowances above the figure

to which the Conservatives allowed it to fall in 1973.
I welcome that as an important step. But in the light of what we are deciding this afternoon and in the light of this bias in favour of automatically indexing personal allowances, that increase is not enough. Next April, under the concession that has been given by my right hon. Friend, the combined level of child tax allowances and child benefits for two children under 11 at current prices becomes £5·90 per week compared with £4·89 this April. That is an increase of just over £1 at current prices. However, by the time the increase takes effect prices will have gone up again. Even if we are lucky, prices will have gone up by 10 per cent., if the Government achieve their objective. If we take a rate of inflation of only 9½ per cent. between now and then, the real value of the 1978 figure will drop to £5·44, a real increase of only 55p per week for a family with two children. Under the proposals before us today, a single man will be 72p a week better off and under the proposals in the Bill there will be a built-in bias in favour of safeguarding that increase next April against the inflation that has taken place. We shall therefore have widened the disparity between our treatement of children and the treatment of those who have no family responsibilities.
What happens if the rate of inflation turns out to be more than 9½ per cent.? Will my right hon. Friend then say that it is only right that we should adjust the child benefit level to take account of that fact, or will the children once again be defeated by stealth?
I put it to the House advisedly that we fact a serious danger here. Child benefit straddles two concepts, the concept of tax allowance and the concept of social benefit. and it is not being properly treated in either respect. We ought to take this matter seriously—it will go on beyond this year, into next year as well—until we have brought the level of our family support up to date through a much bigger increase in child benefit.
The right hon. and learned Member for Surrey, East lectured us about the way the Government's failure to increase personal allowances in his words "extends the range of disincentives." When will the House of Commons get clearly into its mind that the biggest disincentive to work


in our society lies in the fact that those with large families or on low wages—the two very often go together—are the ones who can find themselves better off on the dole simply because, if they are on the dole, they receive £4·50 a week for every child, whereas at present they get £1 for the first child and £1·50 for the second, and even under my right hon. Friend's increase next year they will get only £2·30?
From all points of view, I am convinced that this matter ought to be one of the most urgent priorities in our fiscal and social policy. I agree with my right hon. Friend that there are dangers in indexing just one little part of our provision in the total attack on poverty. I understand my hon. Friend's purposes and I share them, but my right hon. Friend is right when he says that if we index only partially something has to give. We are not indexing either side of child benefit, neither the tax side nor the social benefit side, and I beg the House to make this its consuming interest and its major demand in the coming months.

Mr. Powell: The right hon. Lady the Member for Blackburn (Mrs. Castle) has made a devastating indictment of the consequences of partial indexation. She has exposed the truth that if one is seeking what might be called justice, or at any rate a common level of adjustment to the consequences of inflation, it must be indexation everywhere or indexation nowhere, for in so far as the indexation is imperfect, a burden is shifted, and probably shifted far less visibly than was any shift which took place as a result of a clause of this kind not appearing in any previous Finance Bill.
The fact that these provisions, namely, Clause 22(2) and (3), appear in the present Bill makes this one of the gloomiest days for many a long year for Her Majesty's Treasury. That might be treated with levity, but mistakenly so, for there is no Department of State more intimately concerned with the welfare of the public interest as a whole, and within that whole not least the weakest members of society, than is Her Majesty's Treasury.
This provision is intended as far as possible to bind the hands and to bias the judgment—I take the word from the right hon. Lady; she used it correctly—

of future Governments and future Chancellors of the Exchequer, and it will do so in a manner likely to contribute to the maintenance of a state of inflation, for with this subsection yet another barrier or dyke against inflation is being deliberately demolished and washed away.
The Chief Secretary—it was over this that he and I had a brief exchange—sought to suggest that, since there was the second part of subsections (2) and (3), the House could in any future year decide whether it wanted to continue to adjust some—not all—of the personal tax allowances to the actual experience of inflation. Of course, the opposite is the case.
On the Finance Bill, it is on proposals to reduce taxation, on amendments which would have the effect of reducing the burden, that it is open to any hon. Member or any section of the House to test the opinion of the House as to the desirability of an alteration in the Bill. In future, however, if the allowances are not to rise pari passu with the retail price index, it will be necessary for the Chancellor of the day to execute a remarkable operation. He will have to succeed in carrying with him both the Prime Minister and his party on the most improbable proposal that he could put before them, namely, that as a matter of policy in their Budget that year they should deliberately reduce personal allowances all round.
One has only to translate that into terms of static money to realise what a rare bird would be the Chancellor of the Exchequer who would deliberately build into his Budget a proposal for a general reduction in personal allowances. To succeed, he would have to have the further rarity of a charm of manner even greater than that of the Chief Secretary in order to carry with him his chief, his colleagues and his party.

Mr. Nigel Lawson: I do not wish to contest the right hon. Gentleman's assessment of the character of the present Administration, but will he answer this question? He said that we must think in real terms, and I shall do so. Is he saying that it is far preferable for these real cuts in allowances and these real increases in taxation to be introduced by stealth, with no parliamentary approval as such, simply by the


mechanism of inflation? If he is saying that, is the right hon. Gentleman therefore arguing—he is always logical—that the higher the rate of inflation the better, since that give the Chancellor of the Exchequer even,greater scope to reduce the real value of the allowances by stealth?

Mr. Powell: The hon. Gentleman's fervid imagination just ran away with him at the end of that question, for until he reached the end I was minded to meet it with an affirmative. The cause of inflation is the persistent and perpetual unwillingness of Governments to meet increases in expenditure with increases in revenue or in real borrowing. That is the cause of inflation. By making the profound change—it will not remain isolated—which is being written into this Bill we are increasing the propensity of Governments to allow expenditure to outstrip revenue.
The Chief Secretary was therefore right when—turning my argument through 90 degrees, but it is still the same point—he said to his hon. Friends below the Gangway that they were in danger of putting more pressure upon the total of public expenditure. That, indeed, is the effect. [HON. MEMBERS: "What is wrong with that?"] What is wrong with that is that if we are the enemies of inflation, the greatest of all injustices, the greatest untruth in at least financial public life, we ought to seek to make it as easy as possible for Governments to match expenditure with revenue or real borrowing—and, since we are talking here about revenue, I may drop the other half of the argument
6.0 p.m.
No House of Commons has been under any delusion about the ratchet effect of inflation on the yield of taxation; but it has been a palliative and a defence against inflation—it has been an arm of those who have been combating inflation—that without overt action, without positive action, without a positive decision by Government, there was a buoyancy of revenue which rose to meet the exorbitant demands of the total of public expenditure. Now that weapon is not merely being taken away; it is being turned against the Government. They are deprived of this de vice which we all knew perfectly well existed.
In any case, it has been open to any section of the House at any stage to move amendments—to test the opinion of the House upon them—for adjusting this or that allowance to the level of the value of money. We have known perfectly well what we have been doing, and we have been doing, at any rate partially, our duty by increasing the yield of revenue so as partly to keep pace with the increasing demand of total public expenditure or, more accurately, the increase until very recently in the size of the PSBR. This will now make it more difficult for Governments in future to control the uncovered part of the PSBR. Almost every hon. Member knows that that is what we are doing.
Therefore, it is not merely a bad day for those whose immediate responsibility is financial in the narrow sense. It is a bad day for all those who suffer from the continuance of inflation. Here we are writing into, of all forms of legislation, a tax Bill a reference to the retail price index and seeking automatically to adjust our tax law to the retail price index. We should be ashamed of ourselves. I am prepared to say that if tellers were likely to be available to support an amendment to delete subsections (2) and (3) I should be happy to go into the Lobby to help to do it. Those who will come after us will rue the day when this amendment was carried against the Government in Committee. They will rue the day when that amendment was carried against a Government who did not have the voting power to take it out of the Bill, as it should have been taken out, on Report. It is one of the requirements of sound public finance—which, in turn, is one of the requirements of public happiness and wellbeing—that Governments, as long as they remain Governments, should be able to maintain the structure of their Budget intact and carry through their tax decisions. This is an example of failure; and we should mark the fact.

Mrs. Wise: The House is discussing this matter as though this were the first encroachment of indexation on our national life, there has been only occasional mention in passing of the fact that this is not the first instance of indexation. We already have indexed pensions. I do not remember my right hon. and hon. Friends on the Front Bench castigating those of us who favour indexed-linked


pensions with gloomy thoughts of the possible consequences of indexation. As far as I know, they supported index-linked pensions because the object of such linking is simply to protect the pensioner. We do not want the standard of living of pensioners to be eroded. It is always open to the Government to increase pensions by more than the increase in the retail price index, but not by less. No one said that that indexation would be the end of civilisation, and yet the introduction of the principle into this Bill is being treated as though that would happen.
I agree with the plea of my right hon. Friend the Member for Blackburn (Mrs. Castle) to index-link child benefits. It was one of my great regrets, in an experience in Standing Committee which was otherwise very happy, that it was not possible to find a way in the Finance Bill of improving the financial position of children. That was not our fault. As my right hon. Friend the Member for Blackburn said, the reason was that child benefits and child tax allowances are in an uneasy conjunction. In neither instance are the children getting fair treatment. A solution to the problem is to index-link the child benefits, but not simply by accepting them at their present level or at their level next April. We must achieve a satisfactory level for child benefits and index-link that.
The objective of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and myself in supporting proposals to index-link the personal allowances is simple. My right hon. Friend the Chief Secretary accused us of taking a very simple view. Indeed, we did. We looked for the method by which the most could be done for those with the least. My right hon. Friend may mock, but increasing personal tax allowances is the only method open to us of helping those with the least.
My right hon. Friend says that we are helping those at the top end of the scale as well. But he knows very well, because he said so, that increasing the personal allowances is the method which comes nearest to fairness. In Committee he told us why the Chancellor of the Exchequer preferred a reduction in the standard rate. He said:
I ask my hon. Friend to appreciate what the consequences would have been had we done

it all on the threshold. For each £100 increase in personal tax allowances, with the basic rate of 35p one gives £35 to a man whether he is earning £30, £80, £90 or £100 a week."—[Official Report, Standing Committee D,14th June 1977; c. 482.]
That is exactly why my hon. Friend and myself want to put the tax concessions in the form of improving the personal allowances, because it gives the same to people whether they earn £30 or £140, whereas the preferred method of the Chief Secretary and the Chancellor is to reduce the standard rate, which gives more to people earning more right up the scale and discriminates in favour of single people as against families.
I have used the example of the reduction of 2p, giving 19p a week to the man with two children and an income of £40 and £2·19 to the man with two children and an income of £140. This is why we did not like the idea that £1 billion should be used to reduce the standard rate. We said that it should all be used to increase the thresholds. We would also have tossed in the £275 million which went exclusively to those earning more than £140 a week, in many cases substantially more.
My right hon. Friend the Member for Blackburn should bear in mind that figure of £275 million which went exclusively to those on the higher rate bands. Is not a rather similar amount being used to increase child benefits next year and would it not have been a lot better had that £275 million in addition gone on child benefits rather than to those earning £140 a week? Of course it would. My right hon. Friend the Chief Secretary was well aware in Committee of the effect of what we were doing.

Mr. Tony Newton: While the hon. Lady is obviously right to make comparisons between changes in the basic rate of tax and changes in personal allowances, she has not fairly and squarely pointed out to her hon. Friends and to the House that personal allowances also relate to the higher tax rates. Every £1 on personal allowances gives 34p to those who are relatively less well off and 83p to those paying the highest rate of tax on earned income. The hon. Lady must recognise that.

Mrs. Wise: Of course. If the hon. Gentleman had waited a moment I was coming to that. The fact is that every


method of giving a tax concession under our present tax system gives more to the better off. The point about raising thresholds is that the discrimination is less than that of any other method.
I wish that we had a better tax system. I wish that my right hon. Friends on the Front Bench would re-cast the whole tax system so that we did not have to grapple with the problem of giving more than we intend to the best off. We on the Back Benches cannot re-cast the whole tax system, much as my hon. Friend the Member for Perry Barr and I would like to do so.
We cannot, for instance, move from a system of personal allowances applicable right through the scale to a system of a simple exemption. But so long as my right hon. Friends do not see fit to make our tax system more rational so that we can help the low paid without helping those at the top of the scale, they have no right in all honesty to criticise us for doing our best to utilise a very imperfect tax system.
In Standing Committee on 14th June, in addition to telling us that we were giving as much to the man on £30 a week as to the man on £80, £90, or £100, my right hon. Friend told us that a decrease of 2p in the basic rate of tax would do more for the man on £100, £90 or £80 than it would for a man with a lower wage. That is true. The drawback, from the point of view of the majority of the population, is that 71·9 per cent. of adult men earn less than £80 a week. In seeking to do more for those earning less than £80 a week than for those earning more we were actually seeking to help the majority. That is a perfectly sensible objective.
On the other hand, despite the valuable improvements that we have forced into the Bill, we still have a Budget that does most for the best off. Since my right hon. Friends on the Front Bench seem to think that there are great armies of people on higher tax rates, I would tell them that 94·5 per cent. of all adult men earn less than £120 a week.
During the Committee stage on the Floor of the House the Minister of State again tried to make us weep bitter tears about the plight of those on the higher rate bands, but my hon. Friends below the Gangway managed to remain pretty

dry eyed about their plight. We are told that by index linking the personal allowances and the personal allowances only we are opening a terrible door to tremendous activity by the Conservatives if ever they get back to power. That is a bit rich coming from the Treasury. I do not think that in the public mind the Treasury is identified as the supporter and defender of public expenditure.
6.15 p.m.
Should we not be a little more rational about the matter? Are my right hon. Friends trying to tell us that if a Tory Government are returned to power, they would not in any case squeeze public expenditure? Are they trying to tell us that the Tories would not in any case aim to give more tax concessions to the best off than to the poorest? Do my right hon. Friends not see that by index linking the personal allowances, which at least help the poorest as well as the better off, we are actually trying to tie the hands of that Conservative Government? That is why Conservative Government proponents would not swallow our original amendment. That is why they have weakened our original amendment. That is why there is now a provision in the Finance Bill to let a future Conservative Government off the hook.
My right hon. Friend the Chief Secretary might think that is funny, but—

Mr. Joel Barnett: My hon. Friend is being a little less than fair to what I have said. What she fails to understand is that, as the right hon. Member for Down, South (Mr. Powell) pointed out, the Government of the day do not need to use the order that she has put in. They would be able to index personal allowances and cut public expenditure in order to do it. My hon. Friend would then not have mach of a case against them when they did.

Mrs. Wise: When a Budget comes from any Government consisting only of tax concessions for the lowest paid and when public expenditure is cut only by an exactly equivalent amount, I think that we shall have reached a stage when cows are jumping over the moon. We shall be in cloud-cuckoo-land. It will not happen that way. My hon. Friends know that perfectly well.
Conservative Members intend to cut public expenditure in any case. It was not part of their original intention that the poorest paid should in any way be even partial beneficiaries of that process.
If my right hon. Friends adopted the views on economic strategy that are often expressed from below the Gangway, the prospect of a Conservative Government would be greatly diminished.
The suggestion is that there is something beneficial in allowing the tax position of the low paid to be eroded so that we can maintain public expenditure. That leads to the situation in which the biggest cry from Conservative Members is that those on social benefits are actually better off in some measure than low-paid workers. That leads to the situation where we are expected to swallow the fact that the low-paid are actually paying taxes on incomes that are less than supplementary benefit, unemployment benefit, and far less than family income supplement. We are expected to believe that this is a stable situation.
Cannot my right hon. Friends realise that it is from that fact that Conservative Members derive their impetus for demanding the taxation of unemployment benefit? Is not that why in Standing Committee the Financial Secretary made it very plain that the Government were considering all ways and means of taxing unemployment benefit? Is not that bound to come, unless we reach a situation where people do not pay tax on incomes equivalent to unemployment benefit or supplementary benefit?
The tax situation has to move one way or another. My hon. Friends and I want it to move in the direction where people with incomes less than supplementary benefit level do not pay tax. That is a simple objective. However, we have to go a complicated and imperfect way round it because of the tax system, and for no other reason.
My right hon. Friend accused us of appearing to believe that it was possible to maintain real take-home pay by means of tax cuts, index linking, or some such method. I point out to him that it is the Chancellor of the Exchequer himself who first gave the impression that the levels of tax were the key to the maintenance of take-home pay by seeking to

trade off with the unions tax cuts against an agreement to wage restraint. It is the Treasury which introduced the tax question into the wages question and not me and my hon. Friends below the Gangway.
There is a very interesting way of looking at this matter. If we consider the original proposals of the Chancellor of the Exchequer, which no longer stand, which have been improved by our actions but which nevertheless show clearly the way that my right hon. Friend's mind works, we see that for someone with an income of £2,000 a year my right hon. Friend's original full proposals would have been equivalent to a gross wage increase of £2·36 a week but that for someone with an annual salary of £10,000 my right hon. Friend's original proposals would have been equivalent to a gross wage increase of £20·89 a week. There we can see plainly the difference in treatment being meted out to those on the lower levels as opposed to those on the higher levels.
Just in case my right hon. Friend thinks that we have overlooked the fact that these gross pay equivalents are also taxable, let me point out to him that it is an indisputable fact that in real money terms the advantage is far more in favour of the higher income groups, and that the actual money increase which would have been achieved by someone with an annual income of £25,000 is equivalent to almost the whole of the personal allowance of a single person.
It ill behoves my right hon. and hon. Friends on the Treasury Bench to argue that we are helping the high paid and somehow deceiving the low paid. What we have done helps the low paid, and we have had to seek the nearest way that can be achieved within this tax system to help the poorest paid at least as much as those on higher incomes.
If the Chancellor of the Exchequer wants to introduce in next year's Finance Bill a cut-off point for personal allowances, for instance, Government supporters sitting below the Gangway will be in the forefront of his supporters. Until he does that, the argument advanced by my right hon. Friend the Chief Secretary is not an honest one. He accused us of squeezing differentials. He argued against us that we were trying to help the poor as much as the better off. But now he turns that argument on its head.
The idea that allowing personal allowances to be eroded to the great detriment of those on average and lower earnings is in some way a barrier against inflation is utter rubbish. If this Government can reduce inflation by wage restraint or in any other way, I dare say that they will do it. In that case the index linking will be merely words on paper. It will never operate. It will operate only after Governments have faired to prevent inflation.
My right hon. Friend should cease trying to suggest that we are opening the door to Tory policies. He should cease trying to suggest that we are seeking to help the high paid at the expense of the low paid. He knows that both those claims are plainly untrue.
I suggest that if my right hon. and hon. Friends on the Treasury Bench are seriously concerned about improving the position of the poor, when we come to next year's Finance Bill they will conscript my hon. Friend the Member for Perry Barr and ire on to the Standing Committee so that we can assist them further in helping the lower paid.

Mr. Lawson: There seems to be a slight difference between the hon. Member for Coventry, South-West (Mrs. Wise) and the Chief Secretary in interpreting what we have done in these indexation amendments. As one who played some part in assisting the passage of these amendments I must say that the interpretation of the Chief Secretary is nearer the correct one. I shall return in a moment to one or two minor points of disagreement that I have with the Chief Secretary.
I want first, however, to turn to the arguments advanced with his customary force and even greater vehemence than usual by the right hon. Member for Down, South (Mr. Powell). He stressed—and I agree with him—the very great importance of what we are doing today. It is of the first importance. Without doubt it is the most important legislative achievement of this Session. That may not be saying much. We remember how this was to be the great devolution Session. It has not been that. I suggest that perhaps it has been the indexation Session. I shall come later to what I mean by that word, because it is perhaps not the same as what other hon. Members mean by it.
The right hon. Member for Down, South also said that this was not only a very important day but a very black day. On the contrary, I feel it to be a very good day and a very good day's work. I say that partly because, of course, I have been pressing this case ever since I entered the House a little more than three years ago, and I apologise to my right hon. and hon. Friends and to some extent to right hon. and hon. Gentlemen opposite if I have become something of an indexation bore in the process. However, no one gets anywhere in this House unless he is persistent, and I have been just as bored in going on and on with my argument as right hon. and hon. Gentlemen on both sides of the House. The difference is that I am the only hon. Member who has had to listen to the whole of every one of my own speeches. With that, perhaps I may be excused.
Anyhow, we have now achieved this. What is it that we have achieved? The right hon. Member for Down, South says that we have put a bias into the judgment of the Chancellor of the Exchequer. On the contrary, we have removed a bias.
I speak in broad terms, because I know that we have not got this form of indexation applying totally to the tax system. Of course, it should be applied to the specific duties, to the personal allowances as it is now, to the higher rate thresholds, to the higher tax bands and to capital taxation. But we have made a start.
Up until now, the bias has been the other way about, as the Chief Secretary discovered to his cost when he tried to increase the petrol duty. Thus, if a Chancellor wanted merely to maintain, let alone to increase, the revenue from main indirect taxes on hydrocarbon oils, tobacco and alcohol and the vehicle excise duty, there was the most tremendous outcry. On the other hand, if he wished to raise direct tax—income tax— by stealth, it was the easiest way.
That was the bias. We have removed that bias, or have gone some way towards doing so, for the specific duties are not yet indexed. I hope that they will be, so that a Chancellor will have to decide between direct and indirect taxation on its merits and freed from the bias which has applied hitherto. That alone is an important gain.
6.30 p.m.
The right hon. Member for Down, South had a further objection. He said that there was a barrier against inflation that was being wiped away. I totally disagree with him, and so did the Chief Secretary. The Chief Secretary and the right hon. Gentleman had two completely different views on the amendment that was introduced in Standing Committee when I was delighted to have the support of the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West. But the right lion. Member for Down, South argued that somehow there were great forces leading inexorably to higher public expenditure that no Government could possibly check and that all we could do was to finance that expenditure. The implication was that the easier it was to finance it, the better, even if that process were achieved by stealth.
The Chief Secretary, on the other hand, took a different view. He took the view that was set out in the recent OECD report, namely, that the tremendous buoyancy due to inflation leads to ever higher revenue from income tax, which tends to lead Governments to feel that they can spend more than they should, because money is coming in all the time, and this tends to weaken the link between expenditure and taxation. The report said that it is necessary to maintain this if people are to understand the consequences of increases in public expenditure.

Mr. Powell: I should find that a much more convincing picture of the world in which we live if over those years there had been no borrowing requirement. But we have lived through years in which the net barrowing requirement has increased by leaps and bounds and where it has been that additional expenditure which has been financed. That is why that explanation is not convincing.

Lawson: I find the right hon. Gentleman's gloom and pessimism saddening because I always looked on him, and still do, as first and foremost a parliamentarian and a believer in parliamentary democracy and our present system of government. He is saying that we have reached a point at which no Government will have the courage to say to the people and to Parliament "No, there is a limit beyond which public expenditure cannot

be financed without increases in taxation or borrowing, which nobody wants, and therefore it must be stopped." Equally, he is saying that no Government or Cabinet could posssibly agree to increase taxation openly to a level that is necessary to finance, in a non-inflationary manner, public expenditure programmes to which they have committed themselves.
I do not share that gloom and pessimism and, if I did, I doubt whether I could feel that our parliamentary system of government could be justified. I doubt whether I could feel that it could possibly cope with the problems of inflation and the other problems that we face. I found it sad to hear such a distinguished parliamentarian putting forward such a pessimistic and almost cynical analysis of how an economy must be managed under our system.
I turn to the arguments of the Chief Secretary. He made my position very clear and I also wish to make my position clear. I have never maintained that the purpose of this form of indexation was to encourage inflation—heaven forbid—or that it was the answer to inflation. It is neither. It is a different argument, altogether, but the Chief Secretary put up something of a straw man when he said that automatic indexation would be unacceptable. He said it was my amendment giving the Chancellor the power to bring an order before the House to reduce the amount by which the allowances go up that made it acceptable, because it was no longer automatic.
Let me deal first with the point about the indexation or otherwise of public expenditure and benefits, because the two are closely linked. What the right hon. Member for Blackburn (Mrs. Castle) did was worse than even the most automatic indexation. She took two indices—one relating to prices and the other to earnings. She said that each year the benefits must go up by whichever of the two indices rose the more. In other words, in the years when earnings rise faster than prices one indexes in that respect, and in the years when prices rise faster than earnings one indexes according to that situation. That is a curious form of indexation.
However, there is a further difference. In talking of benefits that are indexed one envisages that they will be maintained in real terms all the time
On the question of the indexation of personal allowances for taxation, and if it is extended, as I believe it should be, in respect of higher-rate thresholds and all the higher bands, and even if they are adjusted all the time, that does not say anything about the total yield of income tax. There is nothing to stop the Chancellor from coming to the House and saying, "I have decided to raise the yield of income tax and the basic rate will now be 35, 40 or 50 per cent." I would not support a basic rate of 50 per cent., but the Chancellor could take that course if he wanted to do so and thus he is in no way restricted as to tie total yield of income tax. He could say that the top rate instead of being 83 per cent. would be 93 per cent., just as we want to see it down to 60 per cent. We wish to see these matters out in the open.
There is a further reason for saying that the idea of automatic indexation is a straw man. Let me make clear why I moved the amendment to the amendment originally proposed by the hon. Member for Coventry, South-West. There were two reasons. The first was that in the form in which it was proposed I felt that there was no possibility of its being carried in Committee and certainly no chance of its reaching the statute book. I was concerned to see a measure of indexation on the statute book. Therefore, I proposed my amendment—and I am glad that, for once, it has had the effect I desired.
There was, however, another reason and that relates to the straw man. When there is an annual Finance Act one cannot commit a Government for future years in a rigid way because that would be impossible. Let us examine the narrow point where one has indexation of the threshold, of personal allowances. That determines who pays tax and who does not. It is possible to conceive of there being two parties in this exercise. The first party says that nobody below average earnings need pay any income tax at all. The other party says, on the contrary, that, just as everybody in employment pays the employee's national insurance contribution, so everybody in employment should pay tax.
Is it to be maintained that the provisions of this Finance Bill can prevent such an argument being

said that somehow it is to be fixed immutably as to how many people shall pay tax and how many shall not? Such a suggestion is a nonsense. It would be possible in any future Finance Bill for the Government to say "Notwithstanding subsection (2) of Section 22 of the Finance Act 1977, allowances this year will be so and so."
It will be open to them to say, if they want to be a little more devious about it, that there shall be an extra £50 of deemed income on top of taxable income. The Treasury likes the word "deeming". It has many "deeming" clauses. A deemed £50 more would have the effect of cutting £50 off the allowance. The Government could do that.
What is the common element here? It is that whatever the Treasury had done it would have been explicit. There would have been no more taxation by stealth, no more lowering of the allowances by stealth. It would have been out in the open.
It was important to make it clear that what we were doing was to say "Of course the Chancellor must have complete freedom of action, but it must be open, overt." That is why I put down an amendment to make it clear that it was overt, that the Chancellor could say "Here is an order, which I want the House to approve, which will mean that the allowances go up by very much less than the rise in the cost of living. In fact, they will be reduced in real terms." Therefore, what we are getting at is truth in taxation. It is not some automaticity, which is a straw man. That is impossible under our system.
I thought that the Chief Secretary's speech today marked a great advance in the Treasury's understanding of these matters. It was certainly a great improvement on the pathetic arguments which were put forward against indexation in previous debates. If we had had speeches by Treasury Ministers as balanced and sensible as the Chief Secretary's today, we might have had more fruitful debates for several years past on indexation.
Finally, the Chief Secretary asked "Where does the hon. Member wish it to stop?" I am concerned about indexation of the tax system. As I have explained, this does not hamstring the Chancellor in any way except to remove a


bias which is there at present. It alters the political context and it will therefore have real consequences. But it alters the political context in a wholly helpful way.
I am not in favour of the indexation of wages and I never have been. I believe in free collective bargaining. What free collective bargaining means is that if a particular employer wishes freely to negotiate with the trade union representing employees in his plant that their contract shall be indexed, that is fine. That is their business. They are free to do it, or not to do it, as the case may be. But what we are talking about is the payment of tax. It is not open to any individual to choose, or to bargain about, whether he will pay his tax. That is where we must have honesty and truth. We have taken an important step towards that tonight.

Mr. John Pardoe: I agree with almost every word that the hon. Member for Blaby (Mr. Lawson) said. I have often had cause to support him in debates in the House and in Committee on the issue of indexation.
I want to refer specifically to Amendments Nos. 122 and 123, and to ask for a separate vote on Amendment No. 122.
I shall immediately answer the question which was put to me by the right hon. and learned Member for Surrey, East (Sir G. Howe) about how I found it possible to support in Committee the addition of the words in the amendment and why I now wish to remove them. My reasons for supporting them in Committee were almost identical to the reasons given by the hon. Member for Blaby. Both he and the right hon. and learned Gentleman sometimes accuse me of doing things because of what they call the Lib-Lab pact. I accuse the hon. Member for Blaby of doing things because of a sort of Blaby-Surrey pact on this occasion. There is no doubt that the hon. Gentleman would have preferred the amendment to stand as it was originally. I should prefer the amendment to stand as it was originally, too.

Mr. Lawson: I should not like it to stand as it was originally, because it would be very badly misinterpreted. It has already been widely misinterpreted in the Press. It is important that we make clear precisely what we are doing.

Making it explicit in this way is an improvement.

6.45 p.m.

Mr. Pardoe: I part company with the hon. Member on that. I do not agree. I think that the main reason for what happened in Committee was that it was essential to vote for the amendment that the hon. Gentleman moved in order to make the main amendment acceptable to his own Front Bench. I voted for it because I knew that without it the principle of indexation could not have been carried in Committee.
I would rather have half a loaf than no bread. We have half a loaf. I should now like to try to make it a whole loaf. That is what the vote on Amendment No. 122 is about. It will put it back into that virginal state in which it would hate been had the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise) had their own way. I should undoubtedly have supported them on that, as I did in the initial stages.
It seems to be agreed among economic schools on all sides that there is a very close connection between inflation and taxation. Milton Friedman has called inflation taxation without representation, and Keynes called it taxation by currency depreciation. One might almost say that it was the tax that dared not speak its name.
Why is inflation bad? I am not quite sure that the right hon. Member for Down, South (Mr. Powell) will agree with me, but it seems to me that inflation in its effect on the purchasing power of money does not cause a loss of wealth to the community as a whole, but does cause a redistribution of wealth within the community as a whole.
That is the reason for the need for indexation. It is to prevent the distortions and redistributions which take place as a result of inflation. The right hon. Gentleman may well say—I am sure he does—"Ah, but inflation is a temporary phenomenon which we—Parliament, Governments and so on—some day will defeat." Some day, some time, perhaps; but it is a long time coming. I agree with Milton Friedman, though I do not agree with him on everything, that indexation makes inflation easier to conquer. What I find strange


about the right hon. Gentleman's approach is that he believes in Milton Friedman almost completely, he accepts the monetarist argument, but when Milton Friedman says "My recipe for inflation will be exceedingly painful, so painful that no one will wish to apply it unless we have indexation" the right hon. Gentleman then parts company with him and says "I will not have indexation." In that case, I do not believe that the monetary cure can be made to work, because no politicians will ever be able to impose it. That is the argument for the link between monetarism and what Friedman calls monetary correction.
I come now specifically to Amendment No. 122, and to ask the Chief Secretary one or two questions about the start of subsection (2). Let us talk on those lines. Let us suppose that they alone were in the Bill with the following subsection omitted, my amendment having been carried. If the retail price index were to rise in the calendar year 1977 by 15 per cent.—I am not assuming that it will, but it is easier to calculate—unless something is done in the 1978 Budget the personal allowance for a married man in 1978–79 will be not £1,295, as it will be in 1977–78, but £1,295 plus 15 per cent., making a total of £1,489. Will that be from 5th April if nothing is done? Indeed, it will. Next year's Finance Bill can presumably change this.
The hon. Member for Blaby said it was perfectly open to the Chancellor to get more revenue from tax by raising the rates and changing the threshold at the top. But he could change the thresholds at the bottom. Were he to do so, would he come to the House with an amendment next year which said "Leave out £1,295" or would it say "Leave out £1,489"? In other words what would the Government have to amend?
If we are trying to produce a monetary correction, the amendment in next year's Finance Bill—supposing that there is an inflation rate of 15 per cent.—should amend £1,489. If it only amends £1,295 then we shall not have indexed the tax system at all. We shall still be fiddling around with funny money or phoney money as the case may be. If the Government want it to be less than £1,489 would they be able to amend it in this way? I think they would. I think that the amendment

could read "Insert £1,320" or whatever.
Would this take place from 5th April or from the date at which the Bill became law? Do we need an order as contained in the amendment of the hon. Member for Blaby, merely in order to enable the Government to change the amount downwards from 5th April? If that is the only reason why we need the order, then it is not a very strong argument.
I do not think that there is a need for these additional lines at all. They give back to the Treasury a very small part of what has been taken away, if anything at all. I think that what we have done in Committee and what we are doing here today constitutes an important blow for parliamentary control over taxation and over the Executive.
We are only doing it because the right hon. and learned Member for Surrey, East is slightly afraid that if he went to the Treasury—by some incredible mistake—to manage our affairs he would be adversely constrained in what he wants to do. If that is the case he must want to reduce the allowances, and I am sure he does not. Parliament has had the temerity to take back part of the control of the tax system, and it would be sensible for it to stick to its guns and not include these additional lines in the Bill.
The effect of inflation on the tax system is basically this: by pretending inflation does not exist Governments can increase tax without parliamentary approval; by allowing inflation to erode taxation Governments allow poorer people to be gathered into the tax net, and middle income earners to be put into the supertax bracket. This makes it easier for Governments to raise revenue from lower-level taxpayers. This is altogether easier than raising tax from expenditure. That is why Governments have continued to switch the burden of tax from expenditure. If the Government want to raise tax on expenditure they have come to the House with a specific proposal and say they want to increase the duties on petrol, whisky or tobacco. Yet they can get tax from incomes simply by the process of inflation.
That is why we have distortion in the tax system and have had it for many


years. When the Government talk of cutting tax that is a farce. Virtually no Government have ever cut income tax at all. In an article in the Financial Times on 14th July Samuel Brittan showed that in 1967–68 there were 20,010,000 taxpayers. Although Governments have consistently said that they are reducing the numbers in 1970–71 there were 20,040,000 taxpayers, despite the large number who had been theoretically removed from the tax net. The number of taxpayers dipped a little in the early years of Lord Barber, but by 1973–74 there were 19,810,000 taxpayers—very nearly as many as in 1970–71, in spite of an enormous amount of propaganda put out in that period claiming that millions of people had been removed from the tax net. Of course, that did not happen. Tax cutting of this kind never happens.
If one looks at the Government's actual receipts one sees that in 1970 total income tax amounted to £7,410 million. In 1973 it was £9,109 million and by 1974 it was £12,113 million. Yet the Government told us throughout that period that they were cutting taxes. They may have cut the tax rates, but they did not cut the actual revenue or the numbers of people caught in the tax net. They were simply failing to adjust for inflation, and that is the situation that we are trying to right.
I believe that we must index the whole tax system. We cannot stop with personal taxation. We must index duties as well. I moved an amendment in Committee to make duties ad valorem. That is one way of doing it, but the actual monetary correction of duties is probably a better way of dealing with this matter. I moved an amendment at the beginning of our Committee discussions on the Floor of the House to index capital gains tax. We must go the whole hog and index the whole tax system. The Government must come to the House with a package and ask us to vote for the whole of it. However, this is not a debate on general indexation and I do not wish to tread those paths.
Nevertheless, it is interesting, when thinking of general indexation, to note that we are coming to a point where economists such as Marshall, Friedman and Keynes all agree, because all have argued at one time or another for indexation

of a large part of the economy. It makes no sense at all to continue indexing some incomes and not others. It is really crazy to continue indexing pensions and not earnings. It is even crazier to index some pensions and not others. We know that private pensions funds are finding it incredibly difficult to keep up with the rate of inflation, and the majority are falling way behind. Are the Government going to step in and sell them indexed bonds? That is what should happen. We must move towards the principle of general indexation. Today we are moving a step in that direction and I wholeheartedly welcome it.

7.0 p.m.

Mr. Rooker: This has been an interesting debate. I thought at one time that it would not take place, because there were no means of raising on Report the issue of partial indexation. My hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I were not going to seek to raise the issue, as the Government, in a generous mood, had given way and had accepted what the Committee had done. I thank the Government for accepting the principle of the amendments made in Committee. They have accepted the principle 100 per cent.
Of course, we do not believe that the Government have gone far enough. We have now gone past the stage of members of the Cabinet heaping personal abuse upon my hon. Friend the Member for Coventry, South-West and me and we are getting down to discussing the issue. I except my right hon. Friend the Chief Secretary, who alone had an honourable record during that weekend. We are now debating this issue on the Floor of the House.
I do not think that my right hon. Friend was fair in the way that he deliberately tried to distort—I should describe it as black propaganda—the effects of the changes in the Bill and what they mean. He sought to do what the Treasury has sought to do since 14th June by the use of planted parliamentary questions.
I want to make it abundantly clear that, after Third Reading tonight, higher income earners will get a smaller overall reduction in tax than they would have had if the Bill had not been amended. We accept that there is a spill-over effect


into the higher rate bands. I know that Opposition Members are getting agitated. A reduction of 2 per cent. on the basic rate does not affect someone in the higher tax bands in the same way as the spillover caused by raising the tax threshold.
For a person to qualify for the higher rate tax, he must earn £5,000, or £6,000 above the personal allowance as it is now, on which he will pay 35 per cent. The Government were planning a 2 per cent. reduction on that basic rate. Therefore, anyone earning all that money and paying all that tax would pay a minimum of £2·40 a week less in tax. That is for the man earning £6,000 a year above the personal allowance. Such a man would have got much less if we could have raised the tax threshold to a higher level and not had the 2 per cent. reduction off the basic rate. At the end of the day it cannot be denied that such a person is now slightly worse off than he would have been had there been no change.
A single person with an income of £10,000 per anum would have gained a tax reduction, as the Budget originally proposed, of £471—over £9 a week. As the Bill leaves the House today with these new amendments, such a person will receive a total tax reduction of £433·75. It is a massive increase in his personal take-home pay because of the massive tax handout that he has received, but it is slightly less than was originally proposed.
A married couple with two children—the average family—with an earned income of £10,000, as originally proposed in the Budget, would have had £385 less tax to pay. It is now £360. Therefore, that family is slightly worse off. But the married couple with two children with an earned income of £3,000 per annum, according to the original Budget proposal, would have gained only £40, whereas now that family will have a tax reduction of £50. I will stand judged on those examples alone.
This is the only way in which Back Benchers can try to shift the burden away from the lower paid. This is the only weapon that we have. It is untruthful of the Treasury to try to distort what we have done in the way that it has sought to do today. It needs to be repeated, and it will be for the rest of the year

so that we get it right in next year's Budget.
The amendments propose to raise the personal tax allowance for a married couple up to £1,295, but it is still nowhere near good enough. I make no apology for saying that this is a supreme party political argument. The fact is that every November when we index pensions, unemployment pay, sickness benefit and supplementary allowances, the newspapers are full of speeches by Tory Members who claim that that is the week that it does not pay to work. They quote examples. They point out that, because of the increase in benefits to be paid in that week, the lower paid are paying tax on earnings which are less than they could get in benefits. They use that argument as a weapon to undermine the Welfare State. They do it every year, and it is on record. We are seeking to remove that weapon from the Opposition, because continual attacks on the Welfare State are not good and will undermine the Labour Party outside the House.
I know that the Treasury has another answer—to tax unemployment and sickness benefit. Indeed, it is actively considering that possibility. It has been considering it for two years. It knows how many civil servants will be required to operate it. The calculations have been made. We want to stop this proposal in its tracks. The only way is to raise the tax threshold at least to supplementary benefit levels.
Today we are to pass an amendment to raise the tax allowances for a married couple to £1,295 from the abysmal Budget figure of £1,225. According to a Written Answer on 15th July, that figure, if it were to take account of supplementary benefit rates, for a couple with no children and no special allowances, but with average rent and rates, which are automatically paid to supplementary benefit claimants, would need to be £1,475. Therefore, we shall have the same problem in November when the other rates are indexed to inflation.
Again, Tories will be saying "This is the week that it does not pay the low paid to work". The low paid will draw the obvious conclusion, and that is what we want to avoid. They can do the sums. People with larger than average families will see it as their prime function to


defend their families. But when they see the two calculations they will realise that they are not defending their families by working, or, if they are working, by fighting redundancy. They will go quietly. That is the conclusion that they will draw. That will not be good for the economy or for the Labour Government and the Labour Party. That is why these allowances are nowhere near high enough.
It is only because, after a tough fight, the Government have accepted the principle of the amendments made in Committee that we have decided not to seek to amend these amendements. We have on our side the great majority of the working population who earn less than average wages. The TUC knows the score. We had a Royal Commission 20 years ago that laid down a cardinal principle, accepted since 1918 when income tax started in its present form, that no one should be taxed on an income that was less than required for subsistence. We define that level today as the poverty datum or supplementary benefit level. That is the minimum subsistence level that we say no one should fall below. We are going against logic and morality in seeking to tax people whose earnings are less than the supplementary benefit level.
I know that some Front Bench Members do not believe that there are any lowpaid workers. They think that everyone is getting £60 or £70 a week, which is above the supplementary benefit level, and that when the Treasury takes a tax slice out of it, they are still all right. That is not the argument. First, many people are earning less than the supplementary benefit level. The New Earnings Survey, inaccurate though it may be at certain levels, proves that every year.
One of my constituents, a married man with two children, is earning only £30 a week. He is worse off working than he would be claiming supplementary benefits. We are trying to shift the balance. We have achieved a little towards shifting that balance—far enough not to cause the Front Bench any more trouble—and that is why we have decided not to try to change the Government's figures.
We shall not take from the Front Bench lectures such as that which we received from the Chief Secretary today on the

spill-over effect. We shall not accept lectures about our argument being simple and unimportant. It is important. That is why we were forced into the position of trying for the indexing amendments. We were forced into that position. We did not wish to do it, because we are not indexers. We were forced because the Treasury has, for the last three years, allowed the tax thresholds to drop so low and brought so many people into tax when they earn below the supplementary benefit level.
We do not accept that we must index the rest of the tax system. The Treasury has done that this year for the high-paid taxpayers. There would have been no need to put down amendments to index the higher bands. The unfortunate thing is that most people outside the House do not know the situation. The Government raised the personal allowance for the lower end by only 9 and 13 per cent. when inflation is estimated to be 17 per cent. At the same time they raised the first higher rate band of tax by 20 per cent., the second by 27 per cent. and the third by 23 per cent., and so on. Those figures are well above the inflation levels, Indexation at those levels is not required this year.
Commentators have said that this is only the beginning and that we shall soon start to index the tax relief limit of £25,000 on mortgages for instance. We are completely opposed to that, particularly while the high rate taxpayers can obtain tax relief on mortgage interest payments at their highest margin of tax. Why should most of us receive only 35 per cent. relief on a mortgage when the better off receive up to 85 per cent. off their mortgage interest rates? Why should I help them when most people receive only 35 per cent.? Why should we not adopt the same system as that which applies to insurance and under which everyone receives the same relief?
The Treasury has responded to inflation by raising extra revenue from those on average earnings. We have sought to shift the balance so that the Government can raise extra tax from the higher paid. We oppose any move in the opposite direction. I accept that the extra income from the higher paid will not cover everything that we need because there are fewer higher paid than there are low paid.
That is no excuse for always giving them the extra relief.
The high earners had it too good in the Budget. I make no apology for what I am about to say. Parliamentary Questions since the:Budget and Committee when hon. Members have sought to get their arguments across to a wider public have shown the truth about some of the tax changes. I shall not accept lectures from the Front Bench, particularly from members of this Government.
A high-paid manager who is single and earning £16,000 a year was, under the Budget, to receive a tax reduction of £732 a year, or over £14 a week. If that person was married with two children he was to receive only £604 reduction in income tax. For the Treasury to say that recent changes are a shift in the balance towards the family when the Budget so discriminated against the family, even at this high level of earnings, is a total distortion of the truth. The figures that came out in the Finance Bill Committee were more by accident than anything else. It is a nonsense for the Chancellor of the Exchequer to say that the Government are doing more for the family by shifting the balance by a few quid a year when, in their original Budget there is so much bias against the family that even someone earning £16,000 a year was to receive £14 a week from this Government. A member of the Cabinet receives a salary of £16,000, of course.
7.15 p.m.
I am not willing to accept lectures from members of a Labour Cabinet who have rigged the Budget in favour of middle managers and who get a hell of a spin-off themselves. It is reprehensible for the Chief Secretary to attack what we have tried to do, as he did today. It comes ill from a man who will receive so much himself. I was not going to make that comment until I heard my right hon. Friend's speech earlier today. Nevertheless, I feel that the point had to be made if only because my right hon. Friend sought to attack what we had done.
Indexation has been operated in other countries for a number of years. I believe that it has operated in Holland and Canada for three years. There is no evidence that it has distorted the rate of inflation. The Treasury should use the public relations and propaganda that it

have used to cast smears on myself and my hon. Friends to sell to the trade unions the benefits of increasing tax thresholds. That would have an effect on pay claims. Such high claims would not be needed to take account of taxation, and that battle would be worth winning.
If the Government accepted Amendment No. 122 they would be able to say to the trade unions that they would not need to claim high wage rises because there would be automatic indexation. The unions would not need to claim rises to take account of tax. The Ford workers, for instance, would not need to make a 15 per cent. claim because there would he a reduction in taxation. That is a point that the Treasury should take on board.
Another point of controversy has been whether the Ways and Means Resolution is affected by the amendments. We have been told that, because of the passage of these two amendments to Clause 22, the Ways and Means Resolution required at the time of the Budget has been messed up. I want a categorical assurance from the Government that there are no problems concerning the Resolution and that some of the stories fed to the Press about it are utter nonsense. I have had it confirmed by the Clerk's Department that the amendments carried in Committee already take care of the Ways and Means Resolution procedure, but I want it said from the Front Bench.
If the amendments passed in Standing Committee had not been in order, they would not have been selected. Therefore, by definition they were in order. For example, I put down an amendment to tax the salary of the President of the European Commission, but it was ruled out of order. But these two amendments to Clause 22 were selected and they were passed. I want the red herrings that the Treasury has been putting out on this issue finally to be shot and laid away.
I have a completely open mind about whether the Treasury should bring forward indexation of customs and excise duties. There is merit in the idea. It concerns the same argument as over the petrol duty increase. I would have sympathy with it, but it needs looking at carefully, because customs and excise duties are regressive taxes for the low paid.
But there is another important aspect that needs to be taken into account. I understand that all our excise duties rates over the next years will have to be halved because we shall be harmonising them with the rest of the Community, whose duties are by and large less than ours. This will mean a substantial increase in value added tax. I see hon. Members shaking their heads, but I am assured that that is so. If it not the case, the Treasury will have a better argument for bringing forward some indexation of customs and excise duties. I would not be totally opposed to the idea, but it needs examination. I have an open mind about it.
Finally, I want to place on record that my hon. Friend the Member for Coventry, South-West and I would like to be members of the Standing Committee taking the Finance Bill upstairs next year. The fact that we have already been told that it will happen only over the dead bodies of Treasury Ministers is a matter which in the next Session I may consider raising as a breach of privilege at a suitable opportunity, because it goes against the authority and the rules of the Committee of Selection.

Mr. Budgen: I am sure that the House, listening to the anger of the hon. Member for Birmingham, Perry Barr (Mr. Rooker), will appreciate how stunned he feels himself to be for the way in which he and the hon. Member for Coventry, South-West (Mrs. Wise) have been—and I can put it no other way—conned by my hon. Friend the Member for Blaby (Mr. Lawson) and have adopted a measure of general indexation without realising—[HON. MEMBERS: "Oh."] They had every reason to be conned. It is a complicated matter, and maybe they did not appreciate what was happening. I do not believe that my hon. Friend intended to con them, but the result was that they were conned.
I hope that if tonight is a bad night for inflation, we recognise it as a good night for my hon. Friend. He has been a most consistent advocate of indexation. I recollect that the first time he advocated it was in 1974, in the period between the two elections. I remember that I made one of perhaps my first five or six speeches in this House on the subject.
During that period I used to return to Wolverhampton nervously with my copies of Hansard in my hand, hand them over to my bemused supporters, and always receive the same replies, "Enoch thought differently", or "Enoch expressed it better." When I raised the argument about indexation with my hon. Friend for the first time, I thought to myself "This must surely not be an issue about which Enoch has any view and I can express my own view for the first time without any adverse comparison." So when I express my view on indexation, while it may be much the same view as that of the right hon. Member for Down, South (Mr. Powell), I hope that it will not be thought that that is as a result of any servile and detailed agreement that I have with him on all matters.
The Chief Secretary to the Treasury dealt with the first and most important question about indexation, which is whether indexation will have a good, bad, or neutral effect in relation to inflation. I do not wish in any way to advance further the arguments put to my hon. Friend the Member for Blaby, but what I hope that the Conservative Party will not do is adopt indexation by stealth. I was rather rude perhaps, not to my hon. Friend, but to the hon. Members for Perry Barr and Coventry, South-West when I said that they had been conned by my hon. Friend. They ought not to have been conned. There was no intention on his part to con them. But the fact of the matter is that the Conservative Party might adopt indexation by stealth, because we do not know exactly how far my hon. Friend wants us to go along this line. Once one starts on the road to indexation, there is an inexorable logic to take one further along the journey. One cannot simply say that one is in favour of it where it is to one's own advantage but that one is opposed to it where it has disadvantages. In logic, one has to have the lot or none at all.
I have no doubt that in the last war both the British and the German High Commands had publicity departments which spoke of the need for "truth in war", and one feels a little sceptical when one hears about "truth in taxation". It is very easy to say "As far as taxation is concerned, we believe in truth, we believe in indexation". I make no snide comment, but my hon. Friend does not seem to have


been quite so keen about truth in taxation in respect of the petrol duty or of the car licensing payment as he has been about it in other elements of the tax system.

Mr. Lawson: I have time and again consistently stated—and this has been accepted by the Chief Secretary today—that I am in favour of the same form of indexation being applied to specific duties. I have made no secret of it. If my hon. Friend will read the speech I made in the Budget debate, he will see that I dealt in specific terms with the petrol duty. If my hon. Friend will read the speeches of our right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), he will see that for some time he has been making powerful speeches pointing out the evils of an unindexed tax system. There is no point in saying that I am conning people. They have reached their own views.

7.30 p.m.

Mr. Budgen: If my hon. Friend says that I misunderstood his position, I apologise. He is in favour of the total indexation of the total tax system, whether that gives an advantage or a disadvantage to the taxpayer. Must we not go a little further? If we are in favour of indexation in the tax system, how do we resist the argument so cogently put by the right hon. Member for Blackburn (Mrs. Castle)? Do we forget, for instance, that the last Tory Administration indexed public sector pensions? Do we forget, for instance, that the last Tory Administration introduced a measure of wage indexation in phase 3 of their control of wages and incomes?
It seems to me that once we start indexing the whole of the tax system it is difficut to resist the logic of those who argue that, on the other side, we must index all payments made by the State. We reach the stage, I suggest, which I believe is the stage that the hon. Member for Cornwall, North (Mr. Pardoe) wants, where the whole of the public sector is indexed. But where does that take the Tory Party.
I accept that it is theoretically possible to index the whole of the public sector. Indeed, it might be possible to index the transactions that are entered into by large corporations. However, as I understand the present position of the Tory Party, we want to throw away our corporatist

past. We want to give proper encouragement, not by any undue preference, to small businesses and individuals to compete in a free market, without any disadvantages against them.
If somebody borrows some money from his grandmother to buy a house, how can that transaction be indexed? How can somebody who is setting up a little shop in the West Midlands with two or three chaps working on a lathe promise them that he will give them indexed pensions? How can any of the small employers, or any of the small transactions that are entered into in the private sector, be subject to indexation? I suggest that if we have indexation in the great and growing body of the public sector, but we cannot have indexation in the private sector—

Mr. Percy Grieve: My hon. Friend is surely missing the point. Is not the point that indexation of taxation be. comes necessary precisely because one cannot index all wages, salaries, earnings and everything else? The indexation of taxation is a recogniton of the fact that taxation based on old values is totally false.

Mr. Budgen: That is the argument that is put forward by my hon. Friend the Member for Blaby. He believes that once the tax system has been indexed it will be possible to fight off demands for further indexation. I deny that. I note how other Administrations have given way to indexation in areas other than taxation, and I believe that once the tax system is totally indexed we shall find that indexation in public sector pensions will be confirmed. We shall find, for instance, that the present system—which I commend—of cash limits will be revoked and that we shall be back to funny money.

Mr. Lawson: Nonsense.

Mr. Budgen: My hon. Friend says "Nonsense". I hope that he is right, but there is a grave risk that once half the public sector has been indexed, the other half has to be indexed, too. If we give the public sector that enormous advantage, the difficulty is that whole sections of the private sector cannot compete against it. For instance, in borrowing money the State already has enormous advantages. No other borrower can say to those who lend to it "We will give you tax relief on gilts". If, for the sake


of argument, the State—or a large corporation—can say to those who lend to it "We will index the capital, and we will also index the interest payments" what chance have those small businesses and self-employed men on whose behalf we on these Benches often speak of competing for resources and for labour against it?
Much though I admire my hon. Friends strength of character, his eloquence and his force in persuading so many of his colleagues of the need for indexation, the danger is that we, the Tory Party, may end up by accepting the proposition that indexation is appropriate throughout the public sector. We shall then find that it is impracticable for whole sections of the private sector, particularly the small business and the chap on his own whom we want to encourage as being independent of the State. We have to recognise that we must either be in favour of the wholly impracticable dream of total indexation or be against it.

Mr. Douglas Crawford: The hon. Member for Birmingham, Perry Barr (Mr. Rooker) knows that he and I do not agree on many things, and I do not agree with much of what he said tonight, but I commend his courage in doing what he did, and I deprecate what his Front Bench did to him for his action in Committee. Independent minds like his ought to be commended.
I did not have the doubtful privilege of being a member of the Standing Committee that considered parts of the Finance Bill. Perhaps my Whip did not want to discipline me by trying to get me on to that Committee. The hon. Member for Coventry, South-West (Mrs. Wise) used the right words when she said that if anybody wanted her to be on the Committee next year she would have to be conscripted.
I listened carefully to the Chief Secretary, to the right hon. and learned Member for Surrey, East (Sir G. Howe) and to others talking about this group of amendments and transferring the subject to a major debate on indexation. These amendments refer to Clause 22 and discuss personal reliefs for married people, single people, wife's earned income, age allowance, and additional relief

for widows and others in respect of children. The amendments are not about blanket indexation, but about indexation for personal reliefs, and I agreed with the point made by the right hon. Member for Blackburn (Mrs. Castle) about child benefit. I am sorry that the right hon. Lady did not put down a suitable amendment.
The whole point of Clause 22 is not to talk about blanket indexation but to protect the classes covered in the clause. If lines 19 to 23 and 30 to 33 were to remain in the Bill they would make a mockery of the form of indexation referred to in the clause. When the Chief Secretary said that we cannot have blanket indexation, he did not carry me with him, nor did the right hon. Member for Down, South (Mr. Powell) carry me with him when he said that blanket indexation would open the floodgates. I have to tell him that inflation is a fact of Western life.

Mr. Powell: It is not a fact of life.

Mr. Crawford: I suggest, in all humility, that it is.

Mr. Powell: I shall prove in one sentence that inflation cannot be a permanent feature of Western life. Inflation is dynamic. It is a change in the value of money from one period to another. It is inflation only if the deterioration is continued. The deterioration cannot continue indefinitely.

Mr. Crawford: I could discuss the reasons for inflation with the right hon. Gentleman all night. He said that it was dynamic. I think that life and politics are dynamic. Even if the right hon. Gentleman and the Chief Secretary are correct in principle that we cannot have indexation, the Liberal Party amendments, Nos. 122 and 123, refer only to the classes of people in Clause 22. It is almost a case of de minimis.
Why are the Government so afraid of new ideas? We know that they are afraid of Scottish self-government and proportional representation, but why are they afraid of tax indexation? I suggest to them and to the Conservative Party that they should be a little more venturesome and not be afraid of Amendments Nos. 122 and 123. I assume that the hon. Members for Perry Barr and Coventry, South-West will be in favour of them.
May I repeat the question by the hon. Member for Perry Barr to the Treasury Bench? May we have an assurance that the Ways and Means Resolution will not preclude his amendments from going forward? Can the Government tell us what would be the cost of accepting Amendments Nos. 122 and 123? The hon. Member for Cornwall, North (Mr. Pardoe) suggested:hat the rate of inflation during the next year will be about 15 per cent. I think that he is being optimistic, but can the Minister who is to reply tell us how much Amendments Nos. 122 and 123 would cost if the annual inflation rate were 15 per cent.? The cost would need to be very high to persuade the SNP not to support the Liberals in their amendments.

Dr. Oonagh McDonald: You will be pleased to hear, Mr. Deputy Speaker, that I do not intend to detain the House for long. I welcome the changes in personal allowances forced by my hon. Friends in Committee. The reasons for the changes have been emphasised and I merely wish to go over them briefly.
The proposed scheme is the best way of helping the low-paid and the majority of ordinary workers. The figure of £80 a week as the average wage for a man has been bandied about recently, but it gives a misleading impression. Wages range from £23 a week for men covered by the Wages Council legislation to the wages of the oil refinery craftsmen in my constituency who are regarded as highly paid and who earn through basic pay and additional payments a gross of £74 to £76 a week. People try to get jobs in the refineries because they are regarded as better paid.
Raising the personal allowances is the best way available to us within the present tax system of assisting these workers. That is why my hon. Friends voted for the amendment even though they realised that, unavoidably, assistance was also being given to higher wage and salary earners.
Over a long period, the partial indexation in Clause 22 would improve the position of the low-paid, but it could have a distorting effect in the immediate future because it could shift the effective burden of taxation from single people to families first, because the child allowances are

being reduced and gradually phased out, and secondly, because indexation as expressed in the Bill will be in line with the rise in the Index of Retail Prices and this is inadequately weighted for the effects of inflation on the expenditure of low-income families. Most of their income goes on rent, heating, lighting and food and only secondarily on clothing and last of all on an occasional luxury. The index does not adequately indicate the effects of inflation on these families.
The partial indexation of personal allowances is not enough. It will not help low-paid families sufficiently. In her eloquent plea for an increase in child benefit, my right hon. Friend the Member for Blackburn (Mrs. Castle) made exactly the right point when she said that we should certainly increase the personal allowances but that we should also make sure that we gave additional support to families through a substantial increase in child benefit. This is vital if we are to support families and relieve the burden of taxation on single people.
7.45 p.m.
Clause 22 forces a Chancellor of the Exchequer who does not intend to raise personal allowances in this way to explain the reason for his decision to the House. That may not be a bad thing. It forces the Chancellor to ask himself every year "To index or not to index?" It is to be hoped that Chancellors will take almost as much time to answer that question as Hamlet took to answer a similar question.
Perhaps it was in the Chief Secretary's mind to accept the amendments for another purpose. He said that he was unhappy about the proposed system of indexing personal allowances because it would produce greater benefits for the higher paid. Perhaps it is just as well that the Chancellor and the Chief Secretary should be faced with the question "To index or not to index?" Perhaps we may take seriously their unhappiness about the proposals in Clause 22. Perhaps the Chief Secretary proposes to bring forward next year much more radical plans for changes in the tax system that would enable us to benefit the low-paid ordinary worker without, at the same time, stuffing the pockets of the rich that are already full of money. Perhaps the Chief Secretary will take


a much more radical look at the whole system of income tax. It is time that this was done.
The burden of taxation falls disproportionately in the low-paid. It is unfairly distributed throughout the system so that the higher paid bear a proportionally lighter burden than those on low incomes. There are also other injustices. It still discriminates against married women and underprivileged groups. It is time that the whole thing was looked at critically, and I recommend the Chief Secretary to get down to work on the income tax system in this way.
We share certain objectives. We want to see a wealth tax and the burden of taxation on the lower paid eased. We want support to be directed effectively to families. We do not want those in work to be worse off than those who are unfortunately out of work and who have to resort to supplementary benefits or social security. But it is difficult to realise these objectives within the present income tax system. It needs careful examination in order for us to realize these ideals. It needs a much more radical change than the indexation of personal allowances, the slight raising of tax thresholds and an increase in child benefits.
I have spelt out the changes that we want. Since the Chief Secretary has expressed doubts about whether indexation of personal allowances would work, I hope that he and the Chancellor of the Exchequer will come here next year and say that they will not be indexing personal allowances because they have found a much better way of dealing with the problem of fairly distributing the burden of taxation in the community.
While they are looking at the income tax system, perhaps they should take a wider look at the total revenue and the way in which that is raised. At the moment the individual taxpayer is carrying the can for public expenditure. Indeed, one might almost say that the individual taxpayer pays for his own unemployment benefit or for his own social security, should he have the misfortune to fall ill for a long period of time or have the misfortune to lose his job.
Those who are coming off lightly under the present system of raising revenue are the companies. Many large companies are paying no corporation tax at all, and they are not investing at all, therefore, there is no excuse for their failure to pay corporation tax. The contribution to total revenue of those who pay corporation tax is 8 per cent. This has been a declining contribution, aided, regretfully, by Labour and Conservative Governments over the past 20 years, because that is the period during which their contribution has declined. That is where the additional revenue ought to come from.

Mr. Rooker: Will my hon. Friend make it clear that the reason that large corporations are not contributing their fair share of corporation tax is not that the companies are not making profits? The reason is the deferred payment of tax. Under that system, companies can claim an increase in profit of 50 per cent. or 60 per cent., as in the case of Guest, Keen Nettlefold, and end up paying next to nothing in corporation tax. It is not, as one Conservative Member suggested, that they are not making profits.

Dr. McDonald: I thank my hon. Friend for that intervention. That is indeed the case. There are many individual taxpayers who wish they could share the privilege of deferring taxation, but that is solely the privilege of companies, and they are making an inadequate contribution to total revenue.
I accept the reservation that the Chief Secretary expressed in his opening speech, but I hope that during the coming months he will get together with the Chancellor of the Exchequer, take a long, cold look at the old system of taxation and of the raising of total revenue, and let us have a fairer deal for the ordinary taxpayer and for the person on a low income. Let us have a fairer deal for them in line with the objectives that we share on the Government side of the House.

Mr. Graham Page: The debate has concentrated mainly on the amendments to subsections (2) and (3) of Clause 22, the indexation provisions. If subsections (2) and (3) could do what they purport to do, it would be a very substantial constitutional change—the creation of a permanent, automatic indexation as a continuous process of our law.
They cannot, of course, do what they purport to do, because any Parliament can alter an Act at any time it chooses. But if they really did what they seek to do, as the Bill stands, there would be that great change. It would be even greater if both subsections were removed. There may be to some extent a pious hope that these subsections will bind a future Parliament in relation to the revenue that it shall or shall not raise in a certain sphere. Indeed, the opening words of subsection (2) say
In the year 1978–19 and subsequent years
something shall happen automatically: in other words, personal reliefs shall be increased by a certain amount.
As my hon. Friend the Member for Blaby (Mr. Lawson) said, Parliament could at any time repeal or modify that provision, but—and this is my point—until that provision is repealed or modified, it will have a significant effect on the procedure of financial legislation in this House. If I read the provision correctly, it will in future be an increase in taxation if one tries, to put a halt to this process.
Let us suppose that when we are debating the next Finance Bill a Member of the Opposition Front Bench or a Back Bencher wished to increase the marriage allowance but to leave the single allowance as it is. That would be contrary to this Bill. Indeed, as I read it, it would be an increase in taxation to leave a personal relief as it is and not to increase it in accordance with this Bill. That can be proposed only by a Treasury Minister, and it would not be possible for a Back Bench Member or even a Front Bench Member of the Opposition to propose it.
I am fearful that personal reliefs are moving into the legislative sphere, or the subordinate legislative sphere of the old regulator, and that in future we shall have personal reliefs regulated by Treasury order. The hon. Member for Cornwall, North (Mr. Pardoe) said that subsections (2) and (3) as we have them give a greater parliamentary control. I am not sure that they do. I think that as they stand—

Mr. Pardoe: As they stand, they do not.

Mr. Page: Perhaps the hon. Gentleman's amendment to remove the provisos would restore parliamentary control.
My right hon. Friend the Member for Down, South (Mr. Powell) thought that these provisions would worry the Treasury if the Treasury were losing something by them. The Treasury may be celebrating the fact that personal reliefs shall in future be settled by Treasury order.
I think that this is a very dangerous principle. I want only to issue a warning that we ought carefully to watch to see that we do not get by Treasury order further taxation of matters which have always been before the House in the Finance Bill and have been capable of proposal for amendment from the Back Benches.

Mr. Douglas Jay: On this theme of truth in taxation I am glad that the hon. Member for Cornwall, North (Mr. Pardoe) reminded the House that the Conservative Government of 1970–74 constantly told us that they had made cuts in income tax of so many thousand million pounds and that we found at the end of that Government's life that the income tax was yielding many thousands of millions of pounds more than it had at the beginning. It was worth having the debate in order to have that pointed out to us.
I have constantly urged in recent years that the threshold for income tax should be raised because there were too many taxpayers at the bottom of the scale who were paying and who ought not to be paying at all. But it does not follow from that that the right way to do it is to plunge on to what I regard as the slippery slope of indexation. I do not think that the debate ought to end without some warning to the House about what it is doing and some invitation to hon. Members to consider whether they have really thought out where we are going.
It is easy to use the phrase "truth in taxation" and, in a case such as this, to advocate applying that to income tax. But truth in taxation does not end with income tax. If we are to have truth in taxation, there are many other things to which truth will have to be applied. If it applies to income tax, logically, if not socially, a case can be made for applying it to capital gains tax—and if to capital gains tax, why not to capital transfer tax?
8.0 p.m.
I notice that the hon. Member for Cornwall, North has already settled on this course and is advocating the application of indexation to almost the whole of taxation. The trouble is that partial indexation is extremely hard to defend and total indexation is unworkable, as has already been said. If one applies it to taxation, why should one not apply it to Government expenditure as well? It has been applied to public service pensions and in effect it is applied to retirement pensions. Of course that is unavoidable on the grounds of social justice, but it could be argued that we do not have to stop there.
Only one hon. Member has so far mentioned the National Debt. If we are proceeding down the road towards indexation, why should not debt interest be indexed? Why should not capital sums be indexed? If Government bonds are indexed, why not municipal bonds, and if municipal bonds, why not industrial bonds? Hon. Members should consider where all this is leading us.

Mr. Budgen: Does the right hon. Gentleman agree that if that were done, it would pose intolerable burdens for small people, who could not compete by offering these indexed benefits?

Mr. Jay: Certainly. That is likely to be one of the effects, but the other effect, which the hon. Gentleman did not mention, is the intolerable effect on the Budget. The indexation on the tax side would tend to reduce the revenue while the indexation on the expenditure side would tend to increase expenditure. The National Debt is one example.
The whole effect of proceeding further and further down this road would be to drive the Budget further and further into deficit. It is no good hon. Members shaking their heads at that. Clearly, in all those cases it would do so. We have already reduced income tax by a considerable sum. I invite all those hon. Members—including the right hon. Member for Down, South (Mr. Powell), who perhaps agrees with some of what I am saying—who believe that Government deficits are the main cause of inflation to proceed to the inevitable conclusion that indexation of this kind would become the recipe for inflation. It would increase

Government debt and make it more difficult to borrow.
The next step would be that some people would argue—I am not arguing it here—with a good deal of plausibility that we should have truth in this matter, although I would contest whether indexation is the same as truth in economic matters. However, that is a separate argument. If we are to have truth in taxation and truth in Government expenditure, we must have truth in wages and salaries as well.
We had a dose of truth in wages and salaries in 1974 as a result of the previous Government's agreement for a wage threshold. That in itself would certainly be a recipe for cost inflation. It seems inevitable that if one proceeds at all far on this road, both through Budgets and through the effects on cost inflation, one will make it more difficult for this House or Governments in future to resist the inflationary process.
The curious thing about all this is that this argument does not seem to have been produced from any rational, impartial examination of the whole of our economic problems. It has simply been the desire of certain people to pay less tax. Very many people want to pay less tax. I remember that when Hugh Dalton was Chancellor of the Exchequer and everyone used to grumble about PAYE he said "It is not PAYE that people do not like; it is P-a-y-i-n-g". I am inclined to think that this argument about indexation of income tax is not on a much higher level of argument than that.
I believe that the Government have probably gone too far already in giving way to this principle, and I hope that they do not proceed any further. I think that they will find it difficult to hold the line, having given way thus far. I warn the House that if we proceed any further in this direction, we shall make the work of future Budgets and the counter-inflation policy ever more difficult in the future.

Mr. Kenneth Clarke: I congratulate my hon. Friend the Member for Blaby (Mr. Lawson) on the success of his extremely persistent campaign to get a measure of indexation into tax allowances. I think that there was a measure of inevitability about our move towards


indexation in the tax system in this Parliament because, as the right hon. Member for Battersea, North (Mr. Jay) said, this is something of a slippery slope once one begins to bring indexation into public finances.
I think that this is a road down which we are bound to slide a good deal further. It is a road down which we are bound to slide because of the outrageous levels of inflation in the past few years and the levels of public expenditure that the present Government have maintained and felt obliged to finance in part from taxation, but, above all, because in recent years we have introduced a level of indexation into the payment of national insurance benefits. It was becoming a scandalous anomaly that there was a contrast between the payment of index-linked tax-free social security benefit and non-index-linked tax threshold for people on low incomes paying high standard rates of tax.
On this occasion I agree with the hon. Member for Birmingham, Perry Barr (Mr. Rooker), although I do not agree with the way in which he suggested that Conservatives are making political use of it. It has become a scandal that there are growing numbers of low-paid men with large families whom it does not pay to go to work. One of the principal causes has been that tax thresholds have not been keeping in lire with inflation and therefore the contrast between their position and the position of those on national insurance benefits has steadily worsened. Once one has index linking of benefits at the present level of inflation and the non-index-linking of tax thresholds, it was only a matter of time before the situation got intolerable.
We have passed the time—some years ago—when those on family income supplement had to pay taxes on an income that was being supplemented by another part of the social security system. We have now reached the stage where people are paying tax on national insurance benefit levels of income. It was inevitable that as the years went by the anomalies would grow worse. It would have made the poverty trap a lasting disgrace.
It was inevitable that we should move into a system of index linking in our tax system, so long as we already had

this partial indexation of social security benefit built into the system.
I now wish to touch on one or two new anomalies that now arise once we move into index-linking the tax system. The most sensible debate that we can now have is that in which my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and the right hon. Member for Battersea, North have just engaged.
The question now is whether we can realistically stop at this stage carrying index linking still further. If some people think that we can, are they happy with the line that we are now drawing? Should we now look at the most glaring anomalies that we have created by moving the boundary line further into the tax system? I agree with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) that the case for index-linking higher earnings brackets now begins to seem irresistible. I wish to touch on the case for giving some index linking to taxpayers and others with families. The worst anomaly created by the Bill lies yet again where injustice has lain in the past with the taxpayer with a family. I am sure that my hon. Friend the Member for Blaby and the hon. Members for Perry Barr and Coventry, South-West (Mrs. Wise) regard this anomaly as accidental.
Obviously, if hon. Members had succeeded in carrying a "Blaby" amendment two years ago, it would have included child tax allowances in the allowances which they now wish to index link, and the only reason that they have not included child tax allowances now is that we are in the middle of the change-over to the child benefit system. The only child tax allowances left in this Bill are what one might call vestigial or interim arrangements for certain special categories of taxpayer.
What hon. Members have done, therefore, is to index-link tax allowances but not touch child benefit. The right hon. Lady the Member for Blackburn (Mrs. Castle), speaking a little earlier, eloquently and passionately advocated the case for now going straight away to index-linking child benefit as the least a civilised society could do to ensure that we did not go back to the long-standing situation in which we steadily discriminated against


taxpayers with families in every change we made in successive Budgets.
I was startled, however, to hear the right hon. Lady make the case so well, because only two years ago, on 7th July 1975, she, as Secretary of State, was responsible for persuading the House to reject amendments which I then moved on behalf of the Opposition to index-link child benefit. She won sufficient supporters, including the hon. Members for Perry Barr and for Coventry, South-West, and all three of them then voted against index-linking child benefits. I have here the relevant copies of Hansard, with the cruel quotations which I could use but which I shall not, for the sake of brevity, showing how the right hon. Lady set forth the Treasury case on index-linking child benefit with skill and finesse.

Mr. Budgen: If my hon. Friend is saying that he is in favour of index-linking child benefit, what distincion would he draw between child benefit and other benefits given by the State? Does it not follow inevitably that he must be in favour of index-linking all manner of payments by the State?

Mr. Clarke: A large number of payments are index linked already that is the point. The long-term benefits are now index linked, with the approval of both sides of the House, to prices or to incomes, whichever be the greater, and the short-term benefits are linked to incomes only. One reason for arguing the case two years ago was that child benefit seemed to be on the wrong side of the boundary even then.
I am confining myself to this one point, and I am saying that if we leave the boundaries of index linking as they will be set in this Bill, the outcome will be intolerable in the case of child benefit and family support. Everyone will have his case for index-linking some further part of the taxation system and so on, but it seems to me that the family situation is the most pressing.
It will be argued—I hope that it will be—that the Government still have complete flexibility to index-link by uprating child benefit or any other form of family support through the tax system, as they wish. But every time one index-links by statute some part of the benefit system or the tax system, one imposes a rigidity on that part of the system, taking away flexibility

for the Government in that part of the system, so that inevitably, if they are short of resources or of revenue, they have to move in on the others. Thus, the Government will be left with a strong inbuilt bias towards index-linking personal tax allowances, and for any Chancellor of any party in a difficult year for resources or for revenue, that, it seems to me, will be bad news in respect of child benefit and taxpayers with families, unless —perhaps my hon. Friend the Member for Blaby will give us his views on this on some occasion—it is the intention of the index linkers, as it should be, to go on to index-link child benefit.

Mr. Jay: Does that not confirm the point that I made, that his course will lead to increases in expenditure and reductions in taxation at the same time?

Mr. Clarke: Perhaps the point at which I most clearly agree with the hon. Member for Cornwall, North (Mr. Pardoe), my hon. Friend the Member for Wolverhampton, South-West and the right hon. Gentleman is that I am saying that one cannot stop here, and I have a feeling that—some approving and some disapproving—we shall carry on to index link further in our taxation system.
The only point which I emphasise now is that if we should slip further down this slope, we should pretty quickly slip down in the direction of family support and child benefit, because the anomaly created there is, I believe, a complete accident from the point of view of all who have supported the index linking of tax allowances in this Finance Bill.

Mr. David Howell: We have had a giant of a debate which has swept over almost every issue of public finance. Although, no doubt, we were supposed to confine ourselves to the specific amendments before us, all sorts of major issues have been raised.
The right hon. Member for Down, South (Mr. Powell) said that this was a sad day for the Treasury. If I believed that in passing unchallenged now the amendments which were put into the Bill in Standing Committee we were committing ourselves to automatic indexation in the sense that the term is sometimes used in certain quarters outside the House, I should agree that it would be a sad day. But that is not what we are doing, and I think that a great deal of the debate has


failed to follow the distinction that my hon. Friend the Member for Blaby (Mr. Lawson) made between the discretionary provision now in the Bill and the full-blown automatic indexation which some hon. Members on both sides seemed to imply had now arrived with the Bill in its present form. I do not believe that it has arrived.
The right hon. Members for Down South went on from there to argue that what had now been done in Clause 22 made it more difficult for Governments to raise taxes, and he therefore saw before us the nightmare of a wider gap between what Governments would be ready to raise in taxation and what they would spend in public expenditure, with all the hideous implications for inflationary finance which might flow therefrom.
8.15 p.m.
I put the matter the other way round. I believe that easy taxing leads to easy expenditure. Of course, that is not the only cause of expenditure. The very existence of a Budget deficit, particularly an unfinanced Budget deficit, is evidence that expenditure races ahead of taxation available. But if taxation is difficult to raise, that is a lead weight which slows the expenditure machine.
I agree with those who have observed that in a society such as ours the pressures on Governments of whatever persuasion to spend are endless and continuous, and there will be many politicians who in the end will be reluctant to resist them. But I say to those who query the provisions now in the Bill, which I support, that we should create other pressures. Let us put the pressure of the deterrent of more difficult taxation on to the tail of the dog. Then, at least, we shall have some instruments or influences working our way. Indeed, where we have the vast majority paying income tax, those influences will be very great, and I think that that is a development which will help. It will not cure the disease, but it will help to create a healthier atmosphere within the committees and counsels of the Government where the discussion on how public expenditure should be financed takes place.
On balance, therefore—I make no more claim for it than that—I believe that what is here proposed will help to create some pressures the other way, the

way against inflationary finance, the way against an easy rise in taxation leading on to easy expansion of expenditure. In that respect, I agree with what the Chief Secretary presented as his view on this matter. He it was who argued at the beginning of the debate, to the dismay of his hon. Friends below the Gangway, that this provision could make it more difficult for public expenditure plans to go romping forward. That I greatly welcome, and I fully agree with the right hon. Gentleman, although, since he is in enough trouble already with his hon. Friends below the Gangway, I promise him that that is the last time on which I shall burden him with further agreement.
I turn from that aspect of the matter, which I argue should be seen in its proper context as the lesser part of our debate, to the other amendments which are important in themselves and which propose increases in personal reliefs for a great many people. These were proposals which received the backing of my hon. Friends and myself in Standing Committee, some of them on amendments moved by my hon. Friends and some on amendments by hon. Members opposite. I should briefly explain why we took that course and why we continue to support them now, although there has been a slight juggling about the arrangement, against which we have no very strong feeling.
First, let me make clear that reflation is no part of our case. We did not in Standing Committee nor do we today pursue the proposed tax reliefs as part of some device to jump over the ceilings imposed by the International Monetary Fund, to push through the domestic credit expansion ceilings or to enter into any reflation plans, which would be inflation plans, of the kind about which the Prime Minister spoke a few weeks ago. We do not accept that proposition. We argued in Standing Committee that these personal reliefs could be financed by increasing value added tax to 10 per cent. That was our position, and it remains our position.
I know that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) argued with clarity and integrity that he wanted the reliefs to be financed by a smaller reduction in the standard rate of income tax. Therefore, he is happy that


the Government have chosen his course —to reduce the standard rate to 34 per cent. instead of 33 per cent. Our position is different, and I have no hesitation in saying so. We should have liked the cut in the standard rate to be to 33 per cent. with the difference being financed by VAT. That arrangement could have been pursued without any offence to or any impropriety in relation to the public sector borrowing requirement. That is the second point that I make about our view on the proposed increases in the personal reliefs.
My third point was touched on by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). We are against conditionality. We are glad that it has gone down the drain. We never thought much of it. We were reinforced in our view by a number of leading members of the trade union movement. We do not go for the conditionality device by which tax levels are bargained outside Parliament with other groups. However, it can be correctly argued that in the present circumstance of the move back to responsible collective bargaining—perhaps it is irresponsible. but I hope that it is responsible—it helps if the personal allowances can be adjusted, as is nearly happening this year, in line with inflation so that there is no real increase in taxation. To put it the other way, if it is felt that there will be constant erosion of take-home pay and take-home salary by unseen and unauthorised tax increases, that must influence the pay determination outlook.
Therefore, whether or not it can be said that this was planned with marvellous percipience, the position into which the Government have been driven and which, with these amendments to increase personal reliefs, they accept, is one small step in the direction of making the climate less worse for responsible collective bargaining. The climate, in my view, is frightening because we have just wandered straight from a total freeze on collective bargaining into a new situation without any understanding of the responsibilities involved. I know that not all hon. Members agree with that, but at least it helps to reduce the enormous uncertainties which might lie ahead if we were to have complete pay anarchy.
Therefore, in that sense, the amendments are welcome, because people worry about the income tax levied on their wages. They realise more and more that they are paying for public expenditure. This was the theme of the hon. Members for Coventry, South-West (Mrs. Wise) and Perry Barr—that their party had made a mistake by allowing a situation to develop in which income tax fell on such low wages that we could argue that it was a bad thing and, indeed, seek to gain electoral advantage from it. That was the argument of the hon. Member for Coventry South-West. She was right. People realise that they are paying for public expenditure. The old story about it all being free carries less validity as they look at their wage slips.
The Prime Minister may not understand that point. Only the other day he said that for a man with four children earning £75 a week school meals would cost nothing. He may believe that, but the vast majority of work people, even if they do not pay precisely for school meals, know better than the Prime Minister. The Prime Minister's attitude, as long as it is held by leaders of the Government, spells doom for the public finances of this country. However, most people know better than the Prime Minister and realise that it is absurd to claim that for millions of people who are having tax deducted from their wages, public services and benefits for which they do not immediately and on order have to pay cost nothing. In that respect, the amendments make sense and therefore we support them.
We support the proposed increase in personal allowances. We welcome any move which helps to minimise the poverty trap and which raises the thresholds and begins to raise them above supplementary benefit level. Here we are on common ground with some hon. Members opposite. We should like to combine this proposal with a lower basic rate, but we think it essential that through this means primarily—it is not the only means—we should begin to lift the level at which people pay tax back to the more reasonable levels which prevailed before the past three years of inflation and Labour Government.
I come to the argument about indexation and truth in taxation. I make no


apology for leaving it to last because I do not see this as being the main issue. I do not see it as a great leap forward to an era of indexation. I do not see it, as the hon. Member for Cornwall, North (Mr. Pardoe) sees it, as something which we cannot stop as we go forward into his wonderful world of accommodation in which indexation fulfils all the aspirations of Liberal policy. I do not wish to belittle what has been done. There has been a creditable advance and hon. Members on both sides have played a part in it. But it is a small step towards better government in an overtaxed nation and not a major departure of policy, as some hon. Members seemed to indicate, and as the Chief Secretary seemed to indicate. He decided to make a major speech and to take us on a tour of the indexation battlefield. That was curious because it gave greater importance and greater indexation significance to what is proposed than is proposed in Clause 22.
We shall need to watch the situation carefully and to review it next year. My right hon. Friend the Member for Crosby (Mr. Page) rightly drew attention to potential difficulties. It would be foolish not to consider carefully next year how the situation has developed. What is proposed is a small step. I echo the congratulations offered to my hon. Friend the Member for Blaby on his persistence. I do not know whether I should couple that with the names of the hon. Members for Perry Barr and Coventry, South-west. In view of the debate, I suspect not.

Mrs. Wise: Definitely not, especially as the hon. Member for Blaby (Mr. Lawson) weakened our original amendment. We have no cause to be grateful to him.

Mr. Howell: I was right to think that the coupling might not be popular in every quarter.
What is proposed will help towards achieving a more explicit understanding by the people of the tax that they pay. That is healthy. It is an advance in our democracy. It will enable us to adopt a better, healthier and more open approach to public finance. That is why Clause 22, as amended in Standing Committee—in other words, as accepted by the Government—has our support and

why I recommend my hon. Friends to support it.

The Minister of State, Treasury (Mr. Denzil Davies): I shall deal first with the main amendments that we have been debating—Nos. 97, 98, 99 and 100—which deal with personal allowances. The debate has ranged over those amendments and the principle of indexation.
We have had a number of speeches with regard to personal allowances, two in particular from my hon. Friends the Members for Coventry, South-West (Mrs. Wise) and Birmingham, Perry Barr (Mr. Rooker), who again put forward the point that they expressed in Committee and which the Government are now accepting, subject to changing the tilt slightly, by having increased personal allowances and a smaller reduction in the basic rate of tax.
I am sorry that my hon. Friend the Member for Perry Barr imputed personal motives by my right hon. Friend the Chief Secretary as to why taxation has been reduced. He seemed to indicate that this was of benefit to Cabinet Ministers earning £16,000 a year. It was quite unnecessary for my hon. Friend to introduce that personal motive.

Mr. Rooker: rose—

Mr. Davies: I shall give way in a moment. It was quite unnecessary for my hon. Friend to introduce that personal note. Feelings are high on this subject. My hon. Friend is justified if he feels like criticising the Treasury, but my right hon. Friend the Chief Secretary is also justified in criticising the point of view put forward by my hon. Friend. At one stage my hon. Friend indulged in a personal attack upon my right hon. Friend. It was quite unnecessary for him to say what he said with regard to the level of taxation in respect of my right hon. Friend's salary.
8.30 p.m.
I turn to the points raised in the debate. I say again that the level of personal allowances is a matter of personal judgment. The question whether in any given Budget one raises the thresholds, reduces the basic rate of tax or, indeed seeks to introduce a reduced rate band is, unfortunately, a matter of judgment unless one has enough money to do all three.
It would have been a great help if all three could have been done. But that would have cost £5 billion. It is not possible to do that. It is a matter of judgment as to how the smaller sum available is to be apportioned between the different methods of reducing tax. There are perfectly good arguments on both sides. My hon. Friends have put forward their arguments and these have now been accepted, subject to the change in the tilt.
This is not the first time that we have had a debate in this House on indexation. The same arguments have been reiterated in this debate. I would congratulate the hon. Member for Blaby (Mr. Lawson) who seems to have persuaded his own Front Bench that this is a very small, innocuous measure which has no repercussions at all for the rest of the tax system. It is a great achievement for the hon. Gentleman to have persuaded his Front Bench of that fact. Not only that, he also managed to persuade some of my hon. Friends that there are no repercussions here for higher rate thresholds, capital gains tax or public expenditure. Whatever our views on indexation, we should congratulate the hon. Member for Blaby on that great achievement.

Mr. Lawson: As I understand the position, the Government have been persuaded, too.

Mr. Davies: Perhaps the Government are in a position where they cannot do much else than be persuaded. But I assure the hon. Gentleman that he has not persuaded me about the principle of indexation. I agreed almost entirely with my right hon. Friend the Member for Battersea, North (Mr. Jay) who put the case clearly about the dangers of indexation.
I do not believe, as the hon. Member for Guildford (Mr. Howell) said, that this is a small step. I agree with the hon. Member for Rushcliffe (Mr. Clarke). I think that the financial columns in the newspapers have rejoiced—there have been some letters in the Financial Times —at this small step. The hon. Gentleman is not rejoicing because this is a small step but because this House in its wisdom has felt it right and necessary to start indexing the tax system. That is

not a small step. It is a major step and it will have major consequences.
Pressures on other areas of the tax system will obviously increase. It is my personal view that that pressure may prove irresistible as time goes on. We have seen it in this debate. The feeling now is that indexation is a good thing. Other groups may want a slice of the action and a bit of the benefit. Some hon. Gentlemen may wish to index child benefits—there may be a very good case for giving extra assistance to those in receipt of child benefit—with this extra assistance clothed in the cloak of indexation. Another group may want to increase the higher rate thresholds and say "Let us do it by indexation. This is a good thing." So each group which wants a little extra for itself will seek to get it by importing the principle of indexation. Once we have accepted that indexation is right for one allowance, I cannot see in logic how we can argue against applying it to other groups who may also feel as disadvantaged by inflation as the groups who have benefited from indexation.
The difficulty with indexation, as the hon. Member for Rushcliffe said, is that it means giving resources to one group and taking them away from some other group. In times of high inflation, if we seek to protect one group after another from the evil effects of inflation by indexation, there will be another group at the end of the line who will not be able to get that protection because the resources will not be there to protect them.
It is my personal belief—and this is a matter of judgment—that this so-called small step is a major step in that it will lead to irresistible pressures for indexing other areas of the tax system, and perhaps the case might not be thought so worthy by my hon. Friends below the Gangway as that for indexing personal allowances.
The other effect which indexation could have is that of bringing pressure on public expenditure. This again was one of the reasons why the hon. Member for Blaby was in favour of it. He does not deny that. He makes it clear that, once indexation enters income tax, the pressure on public expenditure is bound to increase. Over the last few years, the increases in public expenditure have been financed to


a considerable extent by inflationary increases in taxation. There is no use denying that. It is a fact. We argue that it is right that it should happen that way. At a time when there was a massive world recession, we could not have cut public expenditure. Therefore, we financed a large part of it through these increases in taxation.
The Opposition wish to see public expenditure under pressure, and they believe that by indexing the tax system it can be put under pressure. This will be a consequence. There will be pressure on public expenditure as a result of this indexation of the personal allowances.
The right hon. Member for Down, South (Mr. Powell) seemed to suggest that it would work the other way and that the pressure on public expenditure would not result in a cut in public expenditure, which is what some people want, but rather, would mean an increase in the public sector borrowing requirement, with the effect that that would have on inflation, interest rates and so forth. I do not know what the ultimate effect will be, but it can be said with confidence that there will be pressure on public expenditure one way or the other.

Mr. John Nott: It depends to whom one is talking.

Mr. Davies: I do not know which way but, one way or the other, it does not seem to me that the effects or consequences of it are very desirable. If it results in cuts in public expenditure, Government supporters will oppose it. If it means increasing the public sector borrowing requirement, that does not seem to me very desirable, either. So, either way, the consequences of indexation are not entirely beneficial.
As we have said before, indexation is a panacea. It is an attempt to mitigate the evils of inflation for a particular group who, because certain hon. Members are very eloquent and manage to have their amendments accepted, happen to benefit a particular pressure group. That is bad for our system of taxation. We have heard talk of truth in taxation, which is a slogan. I also believe in fairness in taxation between different groups. Unless one indexes the whole system—

Mr. Lawson: Why not?

Mr. Davies: The hon. Gentleman asks why not. The pressure will be irresistible. The cry goes up now, and no doubt it will go up again and again from one Finance Bill to another, "Why not?". It will be very difficult to resist that cry.

Mr. Pardoe: A good thing, too.

Mr. Davies: The hon. Member for Cornwall, North (Mr. Pardoe) thinks that it will be good if it does. He wishes to index interest rates, contracts, leases and everything else. At the end of the day, if everyone is indexed, we arc back to square one, and no one benefits. The only attraction of indexation is that some groups get it and others do not.

Mr. Budgen: The great attraction of indexation as the hon. Member for Cornwall, North (Mr. Pardoe) suggests, is that it will benefit those who have the knowledge, skill and bureaucracy to introduce indexation, and will totally crush those who are so stupid as to be unable to understand what indexation is all about.

Mr. Davies: Those who have not the knowledge to get in on the act will be left behind. That is what I have been trying to say. However, the House is in a mood to accept this as the easy way out. I am afraid that the mood will continue for some time. In the end there will be an inevitable reaction, but it will not come about for a number of years.
I turn to Amendment No. 122, which is in the name of the Liberal Party and which seeks to go further and to remove the order-making power. I agree with the right hon. Gentleman for Crosby (Mr. Page) that there is a danger—and I am surprised that the Conservatives have not seen that danger—in seeking to introduce order-making powers into fiscal legislation. I would have thought that more members of the Conservative Party, and certainly the hon. Member for Blaby, would see the danger of introducing a power of that nature. However, the hon. Member gets carried away with the benefits that indexation will bring to certain groups to which he would like to see consideration given.

Mr. Lawson: The Minister is making a mistake in talking of introducing order-making powers into fiscal legislation


he not aware that his own Government's Finance Bill, in its original form, further extended such order-making powers? I am referring to the so-called regulator power that is capable by order of increasing taxation by £1½ billion in a full year. Therefore, there is no question of introducing order-making powers. It has already been done.

Mr. Davies: Perhaps I should have said "introduced into the income tax system". I was saying that the right hon. Member for Crosby saw great dangers in introducing order-making powers into fiscal legislation, especially in the case of income tax, and that I was surprised that the Tory Party did not consider this matter to be important.
Amendment No. 122 seeks to remove the order-making power, but that amendment still contains the objection that it clearly is in favour of the kind of indexation that the Liberal Party wants—a system which relates not only to personal allowances but to the rest of the tax system. I hope that the House will accept Amendment No. 97 and the consequential amendments but will reject Amendments No. 122 and 123 which go even further than the original amendment conferring order-making powers.

Amendment agreed to.

Amendments made: No. 98, in page 14, line 11, leave out '£860' and insert '£845'.

No. 99, in page 14, line 13, leave out '"£1,760" and "£1,105"' and insert "£1,765" and "£1,120"' [Mr. Denzil Davies.]

Mr. Denzil Davies: I beg to move Amendment No. 92, in page 14, line 14, at end insert:
'and after the paragraphs in that subsection there shall be inserted the words "and for the purposes of this subsection a person who would have been of the age of sixty-five or upwards within the year of assesment if he had not died in the course of it shall be treated as having been of that age within that year."'.
This amendment arises as a result of New Clause 139 which was tabled in Committee by the hon. Member for Braintree (Mr. Newton). It provides that the age allowance will be available if the taxpayer or his wife—I think that the amendment will mainly apply to the wife —is 65 in the year in question. It relates

to a situation in which the taxpayer has died not in the tax year but before his or her 65th birthday. In other words, at the beginning of the tax year if the taxpayer reaches the age of 65 in that year the Inland Revenue through the coding system will give him or her the age allowance. If that person died without attaining the age of 65, there is a danger in a small number of cases that there will be a clawback from the estate and this might affect a widow of a taxpayer. I commend the amendment to the House.

Mr. Newton: I wish to speak briefly on this amendment. I am indebted on this amendment to a Mr. Newnes, who is a constituent of my hon. and learned Friend the Member for Colchester (Mr. Buck). Mr. Newnes for the second year running has come up with a good point on the Finance Bill.
When I moved the provision in Committee the Chief Secretary was sceptical. However, I am glad to say that, having examined the matter, he accepted that there was a real possibility that a widow could be affected and would face an additional tax burden just because her husband had failed to reach the age of 65—although the tax system had already given him a tax allowance on the basis that he had reached the age of 65. I very much welcome the right hon. Gentleman's acceptance of that possibility.
At the risk of looking a gift horse in the mouth, I would simply make one small additional point. In the letter which he very courteously wrote to me between Committee and Report stages, the Chief Secretary indicated that he saw no reason to carry the logic of this through from the age allowance, which is what we are talking about, to the additional threshold for investment income surcharge, which is in the same state under the law as it stands, because no question of clawback would arise, as the surcharge is normally collected in arrears, unlike the arrangements for dealing with the age allowance itself.
8.45 p.m.
That may be literally true, but it seems to me that there is also the possibility of some injustice to taxpayers who may arrange their affairs on the basis that they will receive the benefit of the additional age investment income surcharge relief on the assumption that the husband or the wife will reach the age of 65 and


may then find that those arrangements on which they had been planning during the year will be upset by the fact that one or other of the spouses never reaches the age of 65 and that their tax liability in that sense rises.
I do not think that it is a particularly good case. It is not an unanswerable case on either side of the argument. But in terms of generosity to a small number of people and avoidance of a little additional hardship for some widows it would be reasonable to ask the Chief Secretary also to look at the self-same case in relation to the investment income surcharge before next year. I do not want to press the point beyond that this evening.
I simply conclude by recording my gratitude to the Chief Secretary for what he has conceded since the Committee stage and for what the Minister has said tonight.

Mr. George Cunningham: I wish to register a slight protest, not about the substance of this change but about the manner in which it has been achieved. We are saying—I entirely support the proposal which the hon. Member for Braintree (Mr. Newton) put forward in Committee—that it is sufficient to reach the age of 64 at the beginning of the year. That is the effect of the change, but it is not the manner in which it is achieved.
What we are saying is that a person must be 65 by the end of the year, but that if he or she dies before reaching that age, but would have reached it in the year if he or she had not died, we shall deem him or her to have reached that age. Of all the backward to forward ways of drafting something, that is the limit. Only a few pages further on, under the Taxes Acts, where we are dealing with children's allowances, we do it sensibly by defining the qualifying age in terms of the age achieved at the beginning of the year in question.
The Taxes Acts are difficult for people to follow at the best of times, but to have this different means of defining ages for children as against people entitled to the old age allowance is perverse. Although I do not ask my hon. Friend the Minister to respond, the point should be noted so that we can have simpler drafting in future.

Amendment agreed to.

Mr. Pardoe: I beg to move Amendment No. 90, in page 14, line 14 at end insert:
'(d) in subsection (1B) for "£3,250" there shall be substituted "£3,500".'

Mr. Deputy Speaker (Sir Myer Galpern): With this we are to take Amendment (a) to the proposed amendment, leave out '£3,500' and insert '£3,700'. and Government Amendment No. 106.

Mr. Pardoe: Here we are concerned with the age allowance. In the Finance (No. 2) Act 1975, the old relief for persons over 65 with small incomes, which was provided by Section 7 of the Income and Corporation Taxes Act 1970, was replaced by a new age allowance. Most of us felt that that was a considerable step forward. The allowance was made available to married couples of whom one spouse was over 65 at any time in the year of assessment, and to single persons over that age where the total income of the claimant did not exceed a certain amount. In 1975 that amount was fixed at £3,000. It was raised by £250 to £3,250 last year.
This year the Government propose no further increase, and various amendments were moved in Standing Committee. One was to raise the amount to £3,750, another to £4,000, but none was put to the vote. It is clearly right that the ceiling should be raised.

Mr. Newton: I am virtually certain that the hon. Member for Cornwall, North (Mr. Pardoe) is misleading himself by not realising that the vote came later in the evening and not at the time when the matter was discussed in Committee. There was a vote later on, and he voted in favour of raising the amount to £3,750.

Mr. Pardoe: The hon. Member for Braintree (Mr. Newton) may be right. It is conceivable that I have misled myself in the labyrinth of these amendments. It is rather like Amendment No. 122, on which we are still waiting to vote.
It seems to me that in any case there should he an increase in the amount this year, and reaching £3,500 would seem to be a very modest increase. Perhaps it is one that the Government feel able to accept and afford.
I do not see the point of the Conservative Party's tabling a further amendment to increase the figure to £3,700. I should have thought that this was a piece of childish spite intended not to help people in this age group but to make life more difficult for the Liberal Party. I do not particularly mind that. In fact I have news for Conservatives: I do not intend to vote for their amendment.

Mr. Newton: The performance of the hon. Member for Cornwall, North (Mr. Pardoe) amazes me. My breath is taken away by the sheer audacity that he displays in calling Amendment (a) an amendment of petty spite.
It has been made abundantly clear in the last three minutes that the hon. Member did not know what happened in Committee. He did not even know what votes he cast. It is sheer gall for him to accuse us of petty spite when he has put down an amendment to bring in a limit that is lower than the one for which he voted in Committee. I can give him a reference for that vote. It is in the Official Report of Standing Committee D, 24th June 1977, columns 541–542. That shows that he voted for a figure of £3,750.
The concern he has expressed tonight for those in receipt of the age allowance who would benefit by these proposals would be a great deal more convincing but for what he said and the fact that he voted for a significantly higher figure in Committee.

Mr. Pardoe: It is not just a question of not having found a reference in Hansard. I have a full brief from Conservative Central Office. Therefore, I know exactly what went on in Committee. If it is wrong to press an amendment at Report stage for an amount that is lower than that which I supported in Committee, why is the hon. Member today supporting an amendment that is several hundred pounds lower than the £4,000 that the Conservative Front Bench pressed in Committee? Surely that amount is what the Opposition want.

Mr. Newton: The hon. Member for Cornwall, North (Mr. Pardoe) is compounding his errors and ignorance with every word that he utters. The amendment in Committee for £4,000 was in my name, not in the name of the official

Opposition. The official Opposition amendment was for £3,750. We put down a slightly varied figure for Report because the £3,750 was defeated in Standing Committee, largely because of the absence of the Plaid Cymru Member. Had he been there, it would have been a tie. At least, I assume that it would have been a tie. There is no Plaid Cymru Member here to say whether that party is in favour of helping retired people.
Had we put down a similar amendment to the one that had been defeated with the same figure, there would have been some risk, to put it no higher, that it would not be selected. Therefore, we put down the nearest round figure to that for which we fought, for which the hon. Member for Cornwall, North voted and presumably accepted the argument for. I hope that if the hon. Gentleman is to intervene in my speech again, he will have a better factual basis on which to do it.
We are confronted with the reality of the Lib-Lab pact. In this instance it is being pursued at the expense of middle-income retired people. Practically all Liberal Party Members are here in an almost unprecedented way. I have never seen so many Liberal Members here.

Mr. A. P. Costain: Perhaps they have a conscience.

Mr. Newton: My hon. Friend may be right. Whether it is conscience I do not know. But, with such a full attendance on the Liberal Bench and if Liberal Members were prepared to stick to their guns and to vote now for what they voted for in Standing Committee we would have a real chance of carrying it.

Mr. Pardoe: We should have lost.

Mr. Newton: The hon. Member for Cornwall, North said "We should have lost." At least Liberal Members would have been able to look themselves in the face if they had stuck to one thing for more than a month instead of changing their tune so dramatically between voting upstairs and the debate tonight.
The Opposition amendment gives the hon. Member for Cornwall, North and his right hon. and hon. Friends the chance to redeem themselves. Some Opposition Members think that the hon. Member for Cornwall, North is already beyond


redemption. I would not go that far. However, he appears to have been working very hard at it and he has gone a bit further tonight.
The hon. Gentleman put the argument briefly, but I should say that it is a strong argument, for £3,500. Every word that he uttered in support of his amendment for £3,500 would apply just as strongly and with every bit of force to the figure of £3,700 or £3,750.
The hon. Gentleman said that the figure for 1975–76 was £3,000 and for 1976–77 £3,250. The amendment would put the figure at £3,500. The total of the increase over the past two years on the ceiling where people start to lose the benefit of the age allowance is only 15 per cent. I shall not weary the House with a series of figures. However, 15 per cent. is significantly less than anything else with which we can compare it. It is far less than the rise in prices, earnings and pensions.
This conspicuous failure to come anywhere near indexing this figure has meant that the middle-income pensioner has in no way been protected against inflation in the way that Ministers are fond of proclaiming that the retired have been protected. I accept that we are talking of people who are not just on State pensions. But middle-income pensioners have found that their tax bills in relation to income have been rising steadily because of the failure to adjust this ceiling in line with other parts of the tax system, the level of pensions and the rate of inflation.
Anyone in the bracket just above £3,000 or £3,250, whichever year we take, will find that, even if he had no other increase in his income, the increase in the State pension will push him into the area where he suffers a high marginal rate of tax and starts to lose the benefit of the age allowance.
9.0 p.m.
We are not talking about those who are well off or who are massively above the average industrial earnings level. If the ceiling disappeared altogether, 680,000 people would benefit. About 80 per cent. of those are basic rate taxpayers. We are not talking of hundreds of thousands of wealthy retired people, but about a large number whose incomes do not even take them out of the basic tax

rate. Those are the people who have found their tax burden rising steadily because the ceiling has not been adjusted.
I do not wish to take any more of the time of the House. The case for £3,700 is unanswerable. If the Liberals voted as they did in Committee, they would be voting with us and not accusing us of petty spite in trying to help this group.

9.0 p.m.

Mr. Denzil Davies: The Liberal amendment seeks to increase the age allowance limit to an income level of £3,500 at a cost of £10 million. The amendment supported by the hon. Member for Braintree (Mr. Newton) seeks to increase the exemption limit to £3,700 at a cost of £15 million—£5 million above the cost of the Liberal proposal.
In these cases it is difficult to know where to draw the line. In Committee the Conservatives clearly did not know where to draw that line. They put forward an amendment to increase the limit to £3,330. I do not remember what was the magic of that figure. There was also an amendment to increase the figure to £3,750. Now we have a third shot at £3,700.

Mr. Newton: Before the Minister builds too much out of that, my recollection is that the figure of £3,330 was a printing error.

Mr. Davies: I am grateful for that information. I was not seeking to build anything out of it. There seems to be some confusion among the Conservatives. In view of that and as they do not feel as strongly as members of the Liberal Party, I recommend the House to accept the Liberal amendment. If the matter is put to a vote, I recommend the House to reject Amendment (a), which seeks to increase the limit to £3,700.

Mr. David Howell: This has been an unedifying little debate. We have seen an example of the Liberal Party kicking and scratching as it goes down. I understand that Liberal Members are here fresh from a discussion about the Lib-Lab pact. It would help us, in this new era of stability, if we knew whether the pact will last till tomorrow morning.
In Committee the Liberal spokesman supported the call to increase the limit to


£3,750. Now a deal has been done and the Liberals support the Lib-Lab amendment. The House will now express a view which is not the view that could have been expressed if the Liberals had remained true to their original opinion.
I realise that it is asking too much that their view should be the same as it was last week and will be next week. On this occasion we shall have to pursue a different course. we shall have to assert the case, as we think that the ceiling

should be £3,700, which we believe to be a right and fair figure. I therefore urge my right hon. and hon. Friends to support Amendment (a), which would raise the ceiling figure to £3,700.

Amendment proposed to the proposed amendment: (a), leave out '£3,500' and insert '£3,700 '.—[Mr. Newton.]

Question put, That the amendment to the proposed amendment be made:—

The House divided: Ayes 247, Noes 287,

Division No. 208]
AYES
[9.05 p.m.


Adley, Robert
Fell, Anthony
Lawson, Nigel


Aitken, Jonathan
Finsberg, Geoffrey
Le Marchant, Spencer


Alison, Michael
Fisher, Sir Nigel
Lester, Jim (Beeston)


Arnold, Tom
Fletcher, Alex (Edinburgh N)
Lewis, Kenneth (Rutland)


Atkins, Rt Hon H. (Spelthorne)
Fletcher-Cooke, Charles
Lloyd, Ian


Awdry, Daniel
Fookes, Miss Janet
Loveridge, John


Bain, Mrs Margaret
Forman, Nigel
Luce, Richard


Banks, Robert
Fowler, Norman (Sutton C'f'd)
McAdden, Sir Stephen


Bell, Ronald
Fox, Marcus
McCrindle, Robert


Bennett, Sir Frederic (Torbay)
Fraser, Rt Hon H. (Stafford &amp; St)
Macfarlane, Neil


Bennett, Dr Reginald (Fareham)
Fry, Peter
MacGregor, John


Benyon, W.
Gardiner, George (Reigate)
McNair-Wilson, M. (Newbury)


Berry, Hon Anthony
Gardner, Edward (S Fylde)
McNair-Wilson, P. (New Forest)


Biffen, John
Gilmour, Rt Hon Sir Ian (Chesham)
Madel, David


Biggs-Davison, John
Gilmour, Sir John (East Fife)
Marshall, Michael (Arundel)


Blaker, Peter
Glyn, Dr Alan
Marten, Neil


Body, Richard
Goodhart, Philip
Mates, Michael


Boscawen, Hon Robert
Goodhew, Victor
Mather, Carol


Bottomley, Peter
Goodlad, Alastair
Maude, Angus


Bowden, A. (Brighton, Kemptown)
Gorst, John
Mawby, Ray


Braine, Sir Bernard
Gow, Ian (Eastbourne)
Maxwell-Hyslop, Robin


Brocklebank-Fowler, C.
Gower, Sir Raymond (Barry)
Mayhew, Patrick


Brooke, Peter
Grant, Anthony (Harrow C)
Meyer, Sir Anthony


Brotherton, Michael
Gray, Hamish
Miller, Hal (Bromsgrove)


Brown, Sir Edward (Bath)
Grieve, Percy
Mills, Peter


Bryan, Sir Paul
Griffiths, Eldon
Miscampbell, Norman


Buchanan-Smith, Alick
Grist, Ian
Mitchell, David (Basingstoke)


Buck, Antony
Hamilton, Michael (Salisbury)
Moate, Roger


Budgen, Nick
Hampson, Dr Keith
Monro, Hector


Bulmer, Esmond
Hannam, John
Montgomery, Fergus


Butler, Adam (Bosworth)
Harrison, Col Sir Harwood (Eye)
Moore, John (Croydon C)


Carlisle, Mark
Harvie Anderson, Rt Hon Miss
Morgan, Geraint


Chalker, Mrs Lynda
Haselhurst, Alan
Morgan-Giles, Rear-Admiral


Channon, Paul
Hastings, Stephen
Morris, Michael (Northampton S)


Clark, Alan (Plymouth, Sutton)
Havers, Rt Hon Sir Michael
Morrison, Charles (Devizes)


Clarke, Kenneth (Rushcliffe)
Hawkins, Paul
Mudd, David


Clegg, Walter
Henderson, Douglas
Neave, Airey


Cockcroft, John
Heseltine, Michael
Nelson, Anthony


Cooke, Robert (Bristol W)
Hicks, Robert
Neubert, Michael


Cope, John
Higgins, Terence L.
Newton, Tony


Cormack, Patrick
Holland, Philip
Normanton, Tom


Corrie, John
Howe, Rt Hon Sir Geoffrey
Nott, John


Costain, A. P.
Howell, David (Guildford)
Onslow, Cranley


Crawford, Douglas
Hunt, David (Wirral)
Oppenheim, Mrs Sally


Crouch, David
Hunt, John (Bromley)
Osborn, John


Crowder, F. P.
Hurd, Douglas
Page, John (Harrow West)


Dean, Paul (N Somerset)
Hutchison, Michael Clark
Page, Rt Hon R. Graham (Crosby)


Dodsworth, Geoffrey
Irving, Charles (Cheltenham)
Page, Richard (Workington)


Drayson, Burnaby
James, David
Parkinson, Cecil


du Cann, Rt Hon Edward
Jenkin, Rt Hon P. (Wanst'd&amp;W'df'd)
Pattie, Geoffrey


Dunlop, John
Jessel, Toby
Price, David (Eastleigh)


Durant, Tony
Johnson Smith, G. (E Grinstead)
Pym, Rt Hon Francis


Dykes, Hugh
Jones, Arthur (Daventry)
Raison, Timothy


Eden, Rt Hon Sir John
Joseph, Rt Hon Sir Keith
Rathbone, Tim


Edwards, Nicholas (Pembroke)
Kaberry, Sir Donald
Rawlinson, Rt Hon Sir Peter


Elliott, Sir William
Kellett-Bowman, Mrs Elaine
Rees, Peter (Dover &amp; Deal)


Emery, Peter
Kershaw, Anthony
Reid, George


Evans, Gwynfor (Carmarthen)
King, Evelyn (South Dorset)
Renton, Rt Hon Sir D. (Hunts)


Ewing, Mrs Winifred (Moray)
Kitson, Sir Timothy
Renton, Tim (Mid-Sussex)


Eyre, Reginald
Knight, Mrs Jill
Rhodes James, R.


Fairbairn, Nicholas
Knox, David
Rhys Williams, Sir Brandon


Fairgrieve, Russell
Lamont, Norman
Ridsdale, Julian


Farr, John
Latham, Michael (Melton)
Rifkind, Malcolm




Roberts, Michael (Cardiff NW)
Spicer, Michael (S Worcester)
Wakeham, John


Roberts, Wyn (Conway)
Sproat, lain
Walder, David (Clitheroe)


Rodgers, Sir John (Sevenoaks)
Stainton, Keith
Walker-Smith, Rt Hon Sir Derek


Rossi, Hugh (Hornsey)
Stanbrook, Ivor
Wall, Patrick


Rost, Peter (SE Derbyshire)
Steen, Anthony (Wavertree)
Warren, Kenneth


Royle, Sir Anthony
Stewart, Rt Hon Donald
Watt, Hamish


Sainsbury, Tim
Stewart, Ian (Hitchin)
Weatherill, Bernard


St. John-Stevas, Norman
Stokes, John
Wells, John


Scott, Nicholas
Stradling Thomas, J.
Welsh, Andrew


Shaw, Giles (Pudsey)
Taylor, R. (Croydon NW)
Whitelaw, Rt Hon William


Shaw, Michael (Scarborough)
Taylor, Teddy Cathcart)
Wiggin, Jerry


Shelton, William (Streatham)
Tebbit, Norman
Wigley, Dafydd


Shepherd, Colin
Temple-Morris, Peter
Wilson, Gordon (Dundee E)


Shersby, Michael
Thatcher, Rt Hon Margaret
Wood, Rt Hon Richard


Silvester, Fred
Thomas, Dafydd (Merioneth)
Young, Sir G. (Ealing, Acton)


Sims, Roger
Thomas, Rt Hon P. (Hendon S)
Younger, Hon George


Sinclair, Sir George
Thompson, George



Smith, Timothy John (Ashfield)
Townsend, Cyril D.
TELLERS FOR THE AYES


Speed, Keith
Trotter, Neville
Mr. Peter Morrison and


Spence, John
van Straubenzee, W. R.
Lord James Douglas-Hamilton


Spicer, Jim (W Dorset)
Viggers, Peter





NOES


Abse, Leo
Davies, Ifor (Gower)
Hughes, Robert (Aberdeen N)


Allaun, Frank
Davis, Clinton (Hackney C)
Hughes, Roy (Newport)


Anderson, Donald
Deakins, Eric
Hunter, Adam


Archer, Rt Hon Peter
Dean, Joseph (Leeds West)
Jackson, Colin (Brighouse)


Armstrong, Ernest
Dempsey, James
Jackson, Miss Margaret (Lincoln)


Ashley, Jack
Doig, Peter
Janner, Greville


Ashton, Joe
Dormand, J. D.
Jay, Rt Hon Douglas


Atkins, Ronald (Preston N)
Dunnett, Jack
Jeger, Mrs Lena


Atkinson, Norman
Dunwoody, Mrs Gwyneth
Jenkins, Hugh (Putney)


Bagier, Gordon A. T.
Eadie, Alex
John, Brynmor


Barnett, Guy (Greenwich)
Edge, Geoff
Johnson, James (Hull West)


Barnett, Rt Hon Joel (Heywood)
Edwards, Robert (Wolv SE)
Johnson, Walter (Derby S)


Bates, Alf
Ellis, John (Brigg &amp; Scun)
Jones, Barry (East Flint)


Bean, R. E.
Ellis, Tom (Wrexham)
Jones, Dan (Burnley)


Beith, A. J.
English, Michael
Kaufman, Gerald


Benn, Rt Hon Anthony Wedgwood
Ennals, David
Kelley, Richard


Bennett, Andrew (Stockport N)
Evans, Fred (Caerphilly)
Kerr, Russell


Bidwell, Sydney
Evans, loan (Aberdare)
Kilroy-Silk, Robert


Bishop, Rt Hon Edward
Evans, John (Newton)
Kinnock, Neil


Blenkinsop, Arthur
Ewing, Harry (Stirling)
Lambie, David


Boardman, H.
Faulds, Andrew
Lamborn, Harry


Booth, Rt Hon Albert
Fitch, Alan (Wigan)
Lamond, James


Boothroyd, Miss Betty
Flannery, Martin
Latham, Arthur (Paddington)


Bottomley, Rt Hon Arthur
Fletcher, Ted (Darlington)
Leadbitter, Ted


Boyden, James (Bish Auck)
Foot, Rt Hon Michael
Lee, John


Bradley, Tom
Ford, Ben
Lestor, Miss Joan (Eton &amp; Slough)


Bray, Dr Jeremy
Forrester, John
Lewis, Ron (Carlisle)


Brown, Hugh D. (Provan)
Fowler, Gerald (The Wrekin)
Litterick, Tom


Brown, Robert C. (Newcastle W)
Fraser, John (Lambeth, N'w'd)
Lomas, Kenneth


Brown, Ronald (Hackney S)
Freeson, Reginald
Loyden, Eddie


Buchan, Norman
Freud, Clement
Luard, Evan


Buchanan, Richard
Garrett, John (Norwich S)
Lyon, Alexander (York)


Callaghan, Rt Hon J. (Cardiff SE)
George, Bruce
Lyons, Edward (Bradford W)


Callaghan, Jim (Middleton &amp; P)
Gilbert, Dr John
Mabon, Rt Hon Dr J. Dickson


Campbell, Ian
Ginsburg, David
McCartney, Hugh


Canavan, Dennis
Golding, John
McDonald, Dr Oonagh


Cant, R. B.
Gould, Bryan
McElhone, Frank


Carmichael, Neil
Gourlay, Harry
MacFarquhar, Roderick


Carter-Jones, Lewis
Graham, Ted
McGuire, Michael (Ince)


Cartwright, John
Grant, George (Morpeth)
MacKenzie, Rt Hon Gregor


Castle, Rt Hon Barbara
Grant, John (Islington C)
Maclennan, Robert


Clemitson, Ivor
Grimond, Rt Hon J.
McMillan, Tom (Glasgow C)


Cocks, Rt Hon Michael
Grocott, Bruce
McNamara, Kevin


Cohen, Stanley
Hamilton, James (Bothwell)
Madden, Max


Coleman, Donald
Hamilton, W. W. (Central Fife)
Magee, Bryan


Concannon, J. D.
Hardy, Peter
Maguire, Frank (Fermanagh)


Conlan, Bernard
Harrison, Rt Hon Walter
Mahon, Simon


Cook, Robin F. (Edin C)
Hart, Rt Hon Judith
Mallalieu, J. P. W,


Corbett, Robin
Hattersley, Rt Hon Roy
Marks, Kenneth


Cowans, Harry
Hatton, Frank
Marshall, Dr Edmund (Goole)


Cox, Thomas (Tooting)
Hayman, Mrs Helene
Marshall, Jim (Leicester S)


Craigen, Jim (Maryhill)
Healey, Rt Hon Denis
Maynard, Miss Joan


Crawshaw, Richard
Heffer, Eric S.
Meacher, Michael


Cronin, John
Hooley, Frank
Mellish, Rt Hon Robert


Crowther, Stan (Rotherham)
Hooson, Emlyn
Mendelson, John


Cryer, Bob
Horam, John
Mikardo, Ian


Cunningham, G. (Islington S)
Howell, Rt Hon Denis (B'ham, Sm H)
Millan, Rt Hon Bruce


Cunningham, Dr J. (Whiteh)
Howells, Geraint (Cardigan)
Miller, Dr M. S. (E Kilbride)


Davidson, Arthur
Hoyle, Doug (Nelson)
Miller, Mrs Millie (Ilford N)


Davies, Bryan (Enfield N)
Huckfield, Les
Mitchell, Austin Vernon (Grimsby)


Davies, Denzil (Lianelli)
Hughes, Rt Hon C. (Anglesey)
Mitchell, R. C. (Soton, Itchen)







Molloy, William
Roper, John
Tomney, Frank


Moonman, Eric
Rose, Paul B.
Torney, Tom


Morris, Alfred (Wythenshawe)
Ross, Stephen (Isle of Wight)
Tuck, Raphael


Morris, Charles R. (Openshaw)
Ross, Rt Hon W. (Kilmarnock)
Urwin, T. W.


Morris, Rt Hon J. (Aberavon)
Ryman, John
Varley, Rt Hon Eric G.


Moyle, Roland
Sandelson, Neville
Wainwright, Edwin (Dearne V)


Newens, Stanley
Sedgemore, Brian
Wainwright, Richard (Colne V)


Noble, Mike
Selby, Harry
Walker, Harold (Doncaster)


Oakes, Gordon
Shaw, Arnold (Ilford South)
Walker, Terry (Kingswood)


Ogden, Eric
Sheldon, Rt Hon Robert
Ward, Michael


O'Halloran, Michael
Shore, Rt Hon Peter
Watkins, David


Orbach, Maurice
Silkin, Rt Hon John (Deptford)
Watkinson, John


Orme, Rt Hon Stanley
Silverman, Julius
Weetch, Ken


Ovenden, John
Skinner, Dennis
Weitzman, David


Padley, Walter
Small, William
Wellbeloved, James


Palmer, Arthur
Smith, Cyril (Rochdale)
White, Frank R. (Bury)


Pardoe, John
Smith, John (N Lanarkshire)
White, James (Pollok)


Park, George
Snape, Peter
Whitehead, Phillip


Parker, John
Spearing, Nigel
Whitlock, William


Parry, Robert
Spriggs, Leslie
Willey, Rt Hon Frederick


Pavitt, Laurie
Stallard, A. W.
Williams, Rt Hon Alan (Swansea W)


Pendry, Tom
Steel, Rt Hon David
Williams, Alan Lee (Hornch'ch)


Penhaligon, David
Stewart, Rt Hon M. (Fulham)
Williams, Sir Thomas (Warrington)


Perry, Ernest
Stoddart, David
Wilson, Alexander (Hamilton)


Phipps, Dr Colin
Stott, Roger
Wilson, Rt Hon Sir Harold (Huyton)


Prescott, John
Strang, Gavin
Wilson, William (Coventry SE)


Price, C. (Lewisham W)
Strauss, Rt Hon G. R.
Wise, Mrs Audrey


Rees, Rt Hon Merlyn (Leeds S)
Summerskill, Hon Dr Shirley
Woodall, Alec


Richardson, Miss Joe
Swain, Thomas
Woof, Robert


Roberts, Albert (Normanton)
Taylor, Mrs Ann (Bolton W)
Wrigglesworth, Ian


Roberts, Gwilym (Cannock)
Thomas, Jeffrey (Abertillery)
Young, David (Bolton E)


Robinson, Geoffrey
Thomas, Ron (Bristol NW)



Roderick, Caerwyn
Thorne, Stan (Preston South)
TELLERS FOR THE NOES:


Rodgers, George (Chorley)
Tierney, Sydney
Mr. Joseph Harper and


Rodgers, Rt Hon William (Stockton)
Tomlinson, John
Mr. James Tinn.


Rooker, J. W.

Question accordingly negatived.

Amendment No. 90 agreed to.

Amendment made: No. 16, in page 14, line 14, at end insert—
'(d) in subsection (2)(b) (Category A retirement pension eligible for wife's earned income relief) after the word "pension" there shall be inserted the words "or mobility allowance".'— [Mr. George Cunningham.]

Amendment proposed: No. 122, in page 14, leave out lines 19 to 23.—[Mr. Pardoe.]

Question put, That the amendment be made: —

The House divided: Ayes, 24, Noes 268.

Division No. 209]
AYES
[9.22 p.m.


Bain, Mrs Margaret
Penhaligon, David
Wainwright, Richard (Colne V)


Beith, A. J.
Reid, George
Watt, Hamish


Crawford, Douglas
Ross, Stephen (Isle of Wight)
Welsh, Andrew


Evans, Gwynfor (Carmarthen)
Smith, Cyril (Rochdale)
Wigley, Dafydd


Ewing, Mrs Winifred (Moray)
Steel, Rt Hon David
Wilson, Gordon (Dundee E)


Grimond, Rt Hon J.
Stewart, Rt Hon Donald



Henderson, Douglas
Thomas, Dafydd (Merioneth)
TELLERS FOR THE AYES:


Hooson, Emlyn
Thompson, George
Mr Clement Freud and


Howells, Geraint (Cardigan)
Thorne. Stan (Preston South)
Mr John Pardoe


Loyden, Eddie






NOES


Abse, Leo
Boardman, H.
Castle, Rt Hon Barbara


Allaun, Frank
Booth, Rt Hon Albert
Clemitson, Ivor


Anderson, Donald
Boothroyd, Miss Betty
Cocks, Rt Hon Michael (Bristol S)


Archer, Rt Hon Peter
Bottomley, Rt Hon Arthur
Cohen, Stanley


Armstrong, Ernest
Boyden, James (Bish Auck)
Coleman, Donald


Ashley, Jack
Bradley, Tom
Concannon, J. D.


Ashton, Joe
Bray, Dr Jeremy
Conlan, Bernard


Atkins, Ronald (Preston N)
Brown, Hugh D. (Provan)
Cook, Robin F. (Edin C)


Atkinson, Norman
Brown, Robert C. (Newcastle W)
Corbett, Robin


Bagier, Gordon A. T.
Brown, Ronald (Hackney S)
Cowans, Harry


Barnett, Guy (Greenwich)
Buchan, Norman
Cox, Thomas (Tooting)


Barnett, Rt Hon Joel (Heywood)
Buchanan Richard
Craigen, Jim (Maryhill)


Bates, Alf
Callaghan, Rt Hon J. (Cardiff SE)
Crawshaw, Richard


Bean, R. E.
Callaghan, Jim (Middleton &amp; P)
Cronin, John


Benn, Rt Hon Anthony Wedgwood
Canavan, Dennis
Crowther, Stan (Rotherham)


Bennett, Andrew (Stockport N)
Cant, R. B.
Cryer, Bob


Bidwell, Sydney
Carmichael, Nell
Cunningham, G. (Islington S)


Bishop, Rt Hon Edward
Carter-Jones, Lewis
Cunningham, Dr J. (Whiteh)


Blenkinsop, Arthur
Cartwright, John
Davidson, Arthur




Davies, Bryan (Enfield N)
Kaufman, Gerald
Roberts, Albert (Normanton)


Davies, Denzil (Llanelli)
Kelly, Richard
Roberts, Gwilym (Cannock)


Davies, Ifor (Gower)
Kerr, Russell
Robinson, Geoffrey


Davis, Clinton (Hackney C)
Kilroy-Silk, Robert
Roderick, Caerwyn


Deakins, Eric
Kinnock, Neil
Rodgers, George (Chorley)


Dean, Joseph (Leeds West)
Lambie, David
Rodgers, Rt Hon William (Stockton)


Dempsey, James
Lamborn, Harry
Rocker, J. W


Doig, Peter
Lamond, James
Roper, John


Dormand, J. D.
Latham, Arthur (Paddington)
Rose, Paul B


Dunnett, Jack
Leadbitter, Ted
Ross, Rt Hon W (Kilmarnock)


Dunwoody, Mrs Gwyneth
Lee, John
Ryman, John


Eadie, Alex
Lestor, Miss Joan (Eton &amp; Slough)
Sandelson, Neville


Edge, Geoff
Lewis, Ron (Carlisle)
Sedgemore, Brian


Edwards, Robert (Wolv SE)
Litterick, Tom
Selby, Harry


Ellis, John (Brigg &amp; Scun)
Lomas, Kenneth
Shaw, Arnold (Ilford South)


Ellis, Tom (Wrexham)
Luard, Evan
Sheldon, Rt Hon Robert


English, Michael
Lyon, Alexander (York)
Shore, Rt Hon Peter


Ennals, David
Lyons, Edward (Bradford W)
Silkin, Rt Hon John (Deptford)


Evans, Fred (Caerphilly)
McCartney, Hugh
Silverman, Julius


Evans, Ioan (Aberdare)
McDonald, Dr Oonagh
Skinner, Dennis


Evans, John (Newton)
McElhone, Frank
Small, William


Ewing, Harry (Stirling)
MacFarquhar, Roderick
Smith, John (N Lanarkshire)


Faulds, Andrew
McGuire, Michael (Ince)
Snape, Peter


Fitch, Alan (Wigan)
MacKenzie, Rt Hon Gregor
Spearing, Nigel


Flannery, Martin
Maclennan, Robert
Spriggs, Leslie


Fletcher, Ted (Darlington)
McMillan, Tom (Glasgow C)
Stallard, A. W.


Foot, Rt Hon Michael
McNamara, Kevin
Stewart, Rt Hon M. (Fulham)


Ford, Ben
Madden, Max
Stoddart, David


Forrester, John
Magee, Bryan
Stott, Roger


Fowler, Gerald (The Wrekin)
Maguire, Frank (Fermanagh)
Strang, Gavin


Fraser, John (Lambeth, N'w'd)
Mahon, Simon
Strauss, Rt Hon G. P.


Freeson, Reginald
Mallalieu, J. P. W
Summerskill, Hon Dr Shirley


Garrett, John (Norwich S)
Marks, Kenneth
Swain, Thomas


George, Bruce
Marshall, Dr Edmund (Goole)
Taylor, Mrs Ann (Bolton W)


Gilbert, Dr John
Marshall, Jim (Leicester S)
Thomas, Jeffrey (Abertillery)


Ginsburg, David
Maynard, Miss Joan
Thomas, Ron (Bristol NW)


Golding, John
Meacher, Michael
Tierney, Sydney


Gould, Bryan
Mellish, Rt Hon Robert
Tinn, James


Gourlay, Harry
Mendelson, John
Tomlinson, John


Graham, Ted
Mikardo, Ian
Torney, Tom


Grant, George (Morpeth)
Millan, Rt Hon Bruce
Tuck, Raphael


Grant, John (Islington C)
Miller, Dr M. S. (E Kilbride)
Urwin, T. W.


Grocott, Bruce
Miller, Mrs Millie (Ilford N)
Varley, Rt Hon Eric G.


Hamilton, W. W. (Central File)
Mitchell, Austin Vernon (Grimsby)
Wainwright, Edwin (Dearne V)


Hardy, Peter
Mitchell, R. C. (Soton, Itchen)
Walker, Harold (Doncaster)


Harrison, Rt Hon Walter
Molloy, William
Walker, Terry (Kingswood)


Hart, Rt Hon Judith
Moonman, Eric
Ward, Michael


Hattersley, Rt Hon Roy
Morris, Alfred (Wythenshawe)
Watkins, David


Hatton, Frank
Morris, Charles R. (Openshaw)
Watkinson, John


Hayman, Mrs Helene
Morris, Rt Hon J. (Aberavon)
Weetch, Ken


Healey, Rt Hon Denis
Moyle, Roland
Weitzman, David


Heffer, Eric S.
Newens, Stanley
Wellbeloved, James


Hooley, Frank
Noble, Mike
While, Frank R. (Bury)


Horam, John
Oakes, Gordon
Whitehead, Phillip


Howell, Rt Hon Denis (B'ham, Sm H)
Ogden, Eric
Whitlock, William


Hoyle, Doug (Nelson)
O'Halloran, Michael
Willey, Rt Hon Frederick


Huckfield, Les
Orbach, Maurice
Williams, Rt Hon Alan (Swansea W)


Hughes, Rt Hon C. (Anglesey)
Orme, Rt Hon Stanley
Williams, Alan Lee (Hornch'ch)


Hughes, Robert (Aberdeen N)
Ovenden, John
Williams, Sir Thomas (Warrington)


Hughes, Roy (Newport)
Padley, Walter
Wilson, Alexander (Hamilton)


Hunter, Adam
Palmer, Arthur
Wilson, Rt Hon Sir Harold (Huyton)


Jackson, Colin (Brighouse)
Park, George
Wilson, William (Coventry SE)


Jackson, Miss Margaret (Lincoln)
Parker, John
Wise, Mrs Audrey


Janner, Greville
Parry, Robert
Woodall, Alec


Jay, Rt Hon Douglas
Pavitt, Laurie
Woof, Robert


Jeger, Mrs Lena
Pendry, Tom
Wrigglesworth, Ian


Jenkins, Hugh (Putney)
Perry, Ernest
Young, David (Bolton E)


John, Brynmor
Phipps, Dr Colin



Johnson, James (Hull West)
Prescott, John
TELLERS FOR THE NOES:


Johnson, Walter (Derby S)
Price, C. (Lewisham W)
Mr James Hamilton and


Jones, Barry (East Flint)
Rees, Rt Hon Merlyn (Leeds S)
Mr Joseph Harper


Jones, Dan (Burnley)
Richardson, Miss Jo

Question accordingly negatived.

Amendment made: No. 100, in page 14, line 26, leave out '£420' and insert '£450'.—[Mr. Denzil Davies.]

9.30 p.m.

Mr. Jack Ashley: I beg to move Amendment No. 94. in page 14, line 33, at end add—

(4) In section 18 of the Taxes Act (Relief for blind persons)—

(a) for any reference to £180 there shall be substituted a reference to £420; and
(b) for any reference to £360 there shall be substituted a reference to £840'.

I can be brief because this is not in itself a major amendment, the purpose being to increase the tax allowance for


blind persons. The whole problem for blind people was discussed fairly recently, and a couple of notable speeches were made on that occasion by the hon. Member for Walsall, North (Mr. Hodgson) and my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey). The House was then treated to a very clear exposition of the serious difficulties facing blind people.
I am glad that the Chancellor is present for this short debate because, although its scope is narrow, I wish to say something to him about the problems of the disabled generally, although the peg on which I shall hang my remarks will be the tax allowance for the blind.
There are about 120,000 registered blind people in the United Kingdom, but if we exclude the minority who have special benefits through blindness as a result of industrial injury or military service, there are only two available benefits, the supplementary benefit addition and the tax allowance, but no fewer than 50,000 of these blind people have no benefits to offset the extra costs of blindness.
Because of the rules of the House, I cannot discuss those 50,000 blind people who have no allowance or the 40,000 on supplementary benefit, yet theirs are the most deserving case. I can discuss only the 30,000 blind people who receive a tax allowance. But I make no bones about it—my main objective here is to create a bridgehead, insert the thin end of the wedge—whatever apposite metaphor one may choose—to secure a comprehensive disability income.
The Chancellor of the Exchequer, who shows great good will to disabled people, should reconsider his basic views. I know that he is anxious to help in any way he can. Disabled people are not getting the allowance that they should get and the only way in which we can resolve the problem is by introducing a comprehensive disability allowance.
At a recent symposium, a senior Cabinet Minister said that the cost of a comprehensive disability allowance would be no less than £2,000 million. I believe that he was insulting the intelligence of the people listening to him because he was implying that the industrial injuries scheme should be applied to all disabled people, and there are 3 million of

them, but no responsible Minister would suggest that. We would suggest the phased introduction of such a comprehensive scheme, beginning slowly with the most gravely disabled.
I notice that you, Mr. Speaker, are beginning to prick up your ears. I was saying in passing that the amendment is an example of the need for a comprehensive disability allowance. I know that the Chancellor of the Exchequer, who is well disposed towards disabled people, will do what he can to secure a phased introduction of a comprehensive disability allowance and dissuade his Cabinet colleagues from using such outrageous figures as £2,000 million to frighten off people such as myself who are ardent advocates of a disability allowance.
The Chancellor will agree that the tax allowance for blind people is a very important allowance. It has been so described by my hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris), who is the Minister responsible for the disabled. The blind person's tax allowance provides exemption from tax at the marginal rate of £180 a year, or twice this sum if both spouses are blind. My hon. Friend the Member for Wythenshawe said in a recent debate that this allowance
plays a significant and useful part in meeting the extra expenses resulting from blindness".—[Official Report, 5th July 1977; Vol. 934, c. 1197.].
I agree with that analysis. But the crux of the matter is that the tax allowance for registered blind people of £180 is worth only 43 per cent. of its value when it was introduced in 1962. The aim of the amendment is to restore its value. It is a simple objective and one of equity.
I realise that these people are not the poorest of the blind or the poorest of the poor. That is the only reason that I do not propose to press the amendment to a Division. My hon. Friends have already pressed the Government enough on this matter and I do not wish my not pressing this amendment to a Division to be taken as implying criticism of my hon. Friends who have called Divisions on it recently. I agree with their moves.
The basic reason for the special allowance for blind people is to meet the expenses of their disability. All disabled people have outrageous expenses to meet. I could speak for at least an hour about


some of the hidden expenses to which they are subject, but I do not propose to do so. Blind people are particularly prone to expenses such as travel costs, wear on clothes, help in the home and secretarial help. I hope that these few words will be listened to by the Treasury and that when the time comes—I hope shortly—it will do all that it can to help not only blind people but all disabled people whose needs are becoming progressively urgent. I hope that the Chancellor will respond when he can.

Mr. John Hannam: I briefly add my support to the amendment moved by the hon. Member for Stoke-on-Trent, South (Mr. Ashley). As he pointed out, the general objective in all of the work which hon. Members on all sides of the House, and the various organisations representing the disabled, have been aiming for is to try to secure a general disability allowance. The step-by-step approach which we have been pursuing successively over the years has been slowly but surely closing the gap between the allowances which exist and the amount which the Treasury would finally consider presentable in order to bring the whole thing together and create one general disability allowance.
The amendment seeks to fall in line with the general new system of inflation-linked tax allowances which, as all the newspapers are pointing out, heralds a completely new approach to tax allowances. It seeks to extend this principle to those blind people and, I hope, eventually to other disabled groups as well.
I hope that the Minister will pay due regard to the need to bring blind people who face all these extra expenses referred to by the hon. Member for Stoke-on-Trent, South such as special clothes, special equipment and the various extra charges which any blind person faces in pursuing his normal life.
This original allowance now represents about 42 per cent. of its value. I believe that it is the wish of all hon. Members of this House, and all those connected with disabled people, to see that disabled recipients of any allowances at least maintain the net value of the amount that they receive. I hope that we shall give as much support as we can to this amendment in view of the general new approach

to tax allowances which has now been introduced into our affairs.

Mr. Rooker: I shall be extremely brief, briefer than the hon. Member for Exeter (Mr. Hannam). I support the amendment. I should like the Minister, when replying, to tell us what the cost of accepting the amendment would be. It cannot be very substantial compared with the total take from income tax.
The fact that this allowance has been allowed to deteriorate in value so much shows how wrong the tax system is. One day a Government can come along and grant a tax allowance, or raise it, in response to a particular pressure group or issue of the day, and for years later that Government do nothing about it.
We have now reached the point where this allowance is worth only 42 per cent. or 43 per cent. of what it was originally. If there is a case for a disabled person's tax allowance, and clearly there is, there is just as much a case for making sure that an allowance maintains its value.
I am sure that my hon. Friend the Minister would receive the support of the House by accepting the amendment. My hon. Friend the Member for Stoke on Trent, South (Mr. Ashley) said that he would not press the amendment to a Division. There are other ways in which we can get the Government to accept changes which are electorally popular. That is very important. This particular amendment would be electorally popular. That needs to be borne in mind. In addition, there is clearly all-party support in the House for it. I hope that the Government will accept it.

9.45 p.m.

Mr. Patrick Jenkin: I shall be very brief, if only because I do not frequently appear in Finance Bill debates. The point that I should like to make is rather different from that of the hon. Member for Birmingham, Perry Barr (Mr. Rooker). He said "If there is a case for a blind allowance—and there obviously is one". However, if there is a case for a tax allowance for the blind, why is it available only to people who have incomes high enough to pay tax? One could not have a clearer example of the sort of case where the allowance should be a tax credit. If it were a tax credit, the cash value of the


allowance would be available even to those whose incomes were so low as to take them below the tax threshold.
It would seem to me, therefore, although I have every sympathy with the case made by the hon. Member for Stoke-on-Trent, South (Mr. Ashley), that, if there is an allowance, it should preserve its value through the years, the fact is that a tax allowance is not a good way of granting a welfare payment. If one turned it into a tax credit—and it is the long-term aim of the Conservative Party to do so as we are able to phase in a tax credit scheme—one could make sure that not only those with incomes above the tax threshold would benefit but that the credit would be available to those with incomes below the tax threshold. That would seem to be a very much better way of doing it.
The question is, therefore, whether it helps the transition to a tax credit if the tax allowance is raised very substantially. The answer is, in the early stages, "No." The lower the level of the tax allowance in real terms, the less is the cost of switching to a tax credit.
It is not necessarily to the disadvantage of the blind on very small incomes that this credit will have remained low in real terms, because it means that it would be very much easier and therefore sooner that we would be able to introduce a tax credit in place of the tax allowance.
If one were to try to explain to a novitiate the advantages of a tax credit scheme, one could do worse than take the example of a blind tax allowance and explain what would happen if it were converted into a tax credit.
This is not the least of the reasons why my party remains totally committed to the phased introduction of a tax credit system. Both from the point of view of simplicity and from the point of view of social justice, it would have advantages over a system which by its very nature can confer benefits only on those with incomes high enough to pay tax.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) took the opportunity of the blind allowance to discuss general matters concerning a disability pension.
I know that the all-party group on disablement has been pressing for some time for a general disability pension graded according to the level of disability, and the totally blind would be assessed at 100 per cent. disability for this purpose. That is a very respectable long-term aim, and those who have been busy putting forward this view have been arguing on the basis of the facts as they see them and of the kinds of disability of which blindness is one.
When the blind allowance first came into operation, it was seen not as one aspect of disability but as a special kind of problem for those who obtained the greatest degree of sympathy and who could readily be distinguished from other members of the community. Many hon. Members have been busy seeking to persuade the country as a whole that we should treat disability as the important matter it is. My hon. Friend the Member for Stoke-on-Trent, South knows that we cannot debate disability pensions in great detail in this discussion, but he seeks to take this opportunity to raise the wider issue. My hon. Friend did so with considerable restraint and moderation, and I should like to compliment him on the way in which he dealt with the matter.
We well appreciate that out of the 100,000 registered blind only 21,000 claim the blind allowance. Therefore, there are a large number of people in that category who know nothing whatever about the blind allowance, whereas the pension is a different matter. A major problem in discussing benefits and tax allowances lies in the fact that we are providing assistance for the better-off sections of the community. They may not be well off, but they are better off. Those in the category who pay tax at a higher rate benefit most. That runs counter to the general aims of my hon. Friend and others who want to assist those in greatest need.
The problem is that we give most to those who have the most rather than to those who have the greatest need. This is the problem involving the use of tax allowances for social security purposes. If one wants to give money for social purposes, one needs to do so by means of benefits—in other words, by payments directly made to those people. A tax allowance is not the best way to go about the matter, but it is a bridgehead and


means that at least the subject can be aired.
If we are not careful we shall end up with two social security systems. One system will be operated by the DHSS and will pinpoint those places where help is most required. The other will be a rougher, poorer and inadequate method via the tax system and will produce money for those with the greatest means. It is the consensus that that is not the way to handle these matters.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) spoke of the need for a tax credit system. I note the importance of his comments, because there has been some doubt where the Conservative Party stands on such a system. It was calculated some years ago that such a scheme in current terms would cost £5 billion and at the end of all this it has been said that it would eliminate only four of the 44 means-tested benefits. I know that the right hon. Gentleman and his colleagues have been busy on these matters and in due course the scheme will probably see the light of day, but I hope that they realise the problems involved.

Mr. Patrick Jenkin: When the Minister mentions the number of means-tested benefits does he not appreciate that that factor is likely to be far less important than the question of the number of people one can leave out of such benefits? If that is one of the principal aims of a tax credit scheme, we can look forward, even on a simple and modest figure, to the time when we can lift many hundreds of thousands of people, and possibly eventually millions of people out of dependence on means-tested benefits. Even if we did not get rid of a single one of the so-called 44 benefits, which is an artificial list, does the hon. Gentleman not agree that the fact that far fewer people would be subject to means-tested benefits would have great social advantages?

Mr. Sheldon: It is those very means-tested benefits that are responsible for so many people being in the poverty trap. As a person achieves a slight increase in pay, he begins one by one to forgo the 44 means-tested benefits. That is how people get into the poverty trap. If all that one achieves is the elimination of four of these tests, obviously it is much

less attractive than if one were to make an onslaught on a larger number.
At any rate, we have not got the system before us. We have only heard it announced. It is still in the programme of the right hon. Gentleman's party, and we look forward to its emergence in due course.

Mr. Robert Boscawen: I admit that I have not taken part in one of these debates before, but I am interested to know how the Minister can speak like that when only last week he increased the numbers on means-tested benefits by 500,000.

Mr. Sheldon: I understand this problem, but the right hon. Gentleman is offering a solution which, according to his own words will not deal with one of the major aspects of means-tested benefits, their effect on the poverty trap.
All that I refer to is the expenditure of £5 billion. One can do an awful lot in the social security area with £5 billion, yet the amendment does not deal with some of these major issues. Anyhow, we are speaking without anything like the scheme in front of us, and it may need considerable scrutiny before we can be satisfied that it is even worth the early consideration which will eventually have to be given to it.
My hon. Friend the Member for Stoke-on-Trent, South has put forward the need to index the blind allowance. I accept his amendment was largely a means of asserting the claims that he made for payment in other directions. In April 1975 the figure was increased to £180, and if it was indexed from then it would be £250. But I understand, too, that one can take indexing from a different level. I believe that if we were to move in this direction, we should be spending substantial sums and would be putting that money not where the greatest need is, as my hon. Friend would have it, but putting it where it cannot so readily be justified.
My hon. Friend has rightly raised this issue. I admire him for, and congratulate him on, his ingenuity in raising it, but, for the reasons which I have given, I cannot accept the amendment.

Mr. James Dempsey: When my right hon. Friend talked about £250, he used the words


"could not be justified." Will he relate that to the relief given to mortgage payments? In reply to a recent Question I was advised that on average a person spending thousands of pounds on a house received relief of £39 per £1,000. Therefore. if the mortgage is £10,000 the person concerned, whose wife is probably also working receives £390, whereas we are told that for a blind person to receive £250, the present equivalent of the sum fixed three years ago, could not be justified. Will not my right hon. Friend agree that it is not consistent for a Labour Minister to argue along these lines?

Sir Raymond Gower: rose—

Mr. Speaker: Order. We cannot have two interruptions without becoming disorderly. The hon. Gentleman may enter the debate after the Minister's answer to his hon. Friend the Member for Coat-bridge and Airdrie (Mr. Dempsey).

Mr. Sheldon: I though that my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) was making a speech. If he is just intervening in my speech—I thought I had sat down—I shall be glad to assist him if I can. The point I was making was not that blind people need every assistance that can be given within the amounts of money available but that there are better methods of making those moneys available to those in greatest need in the way I thought I had indicated.

Mr. Speaker: Before I call the hon. Member for Barry (Sir R. Gower), may I say that I allowed the Opposition spokesman to touch upon tax credits without going too deeply into the subject. I feel obliged then to allow the Minister to answer. However, I must point out to hon. Members that we are debating blind persons rather than tax credits.

It being Ten o'clock, the debate stood adjourned.

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,

That the Consideration of Lords Amendments to the Insurance Brokers (Registration) Bill may be proceeded with at this day's sitting, though opposed, until any hour.—[Mr. Ashton.]

Orders of the Day — FINANCE BILL

Bill, as amended (in the Committee and in the Standing Committee), further considered.

Question again proposed, That the amendment be made.

Sir Raymond Gower: There seems to be an unhealthy alliance between the two Front Benches against the hon. Member for Stoke-on-Trent, South (Mr. Ashley). It would seem that a respectable argument was put forward in the opening speech—that is, until a Government—any Government—produce an adequate grant, it is quite respectable to suggest that a blind person should pay less tax on the same income than a person who is not blind. The arguments that have been put forward by both Front Benches are just excuses for doing nothing. At least the inclusion of this amendment in the Bill would focus Government attention on the problem of framing an adequate grant for the blind through the social services.

Mr. John Moore: Perhaps my hon. Friend would prompt the Minister to answer the question raised by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) about the cost of the amendment.

Mr. Robert Sheldon: I am sorry. I forgot to answer that. The cost is £1½ million.

Sir R. Gower: It was suggested that the question of cost could have been a disincentive, in that it would make it more difficult to change over. But it is the reverse of that. It should compel the Government to admit that this is becoming expensive, therefore it would be better to change over to a grant. They should agree that this is an expensive way of doing things and it would be better to change to the social services system.
This amendment would compel the Government to look at the matter more urgently, and to create a proper and adequate benefit for the blind through the social services. Pending that, this amendment would be an improvement for some blind pensioners who have to pay tax at the same rate as those who are not blind.

Mr. John Moore: I endorse everything that has been said in support of this tiny amendment. I accept and understand the difficulties that have been put forward, but we are talking about a mere £1½ million—an insignificant sum of money compared with the sort of thing we want to spend it on.
The Minister waves his arms about and dispenses millions of pounds. Only last Friday the Government announced that they were spending £3 million on a Press centre. We are talking about reasonable expenditure to maintain something to which this House is already committed—a benefit to those who are disabled. That is all. We should be a little more aggressive in pressing such an important case.

Mr. Ashley: I am maintaining my stance in not pushing this amendment to a Division for the reasons that I have given. It does not mean that I am soft. It simply means that I am looking to the future. I shall be watching the next Finance Bill very closely in the light of what has been said this evening, and I shall look very hard at what the Government have done.
Hon. Members on both sides have spoken with one voice on this issue. I hope that the Treasury has taken very careful note of the central purpose that we have enunciated tonight.

Amendment, negatived.

Clause 25

CHILD TAX ALLOWENCES: CHILDREN LIVING ABROAD

Mr. Denzil Davies: I beg to move Amendment No. 91, in page 16, line 15, after assessment ', insert:
'(apart from any visit which does not exceed, or visits which together do not exceed, 30 days)'.
Clause 25 provides for non-resident children a reserved right for 1977–78 only to child tax allowances at the full 1976–77 level provided that certain conditions are met.
The condition with which the amendment is concerned is in subsection (2)(a). The amendment introduces a disregard for visits to the United Kingdom totalling more than 30 days. The amendment is put down following an undertaking given by my right hon. Friend the Chief Secretary to the hon. Member for Braintree (Mr. Newton) who, in Committee, argued that some relaxation of the rigidity of the clause should be allowed. The 30 days will now be excluded in determining whether the child tax allowances should be allowed. The amendment meets the undertaking given in Committee. I commend it to the House.

Mr. Newton: I thank the Minister for acknowledging a point that I made in Committee. Our worry was that the parent of a child who appeared in this country for perhaps only 24 or 48 hours might find that he was in receipt neither of a tax allowance nor of a child benefit because he had paid a brief visit here. I am glad that that point has been cleared up and, indeed, eased.
In Committee there was some argument about the possible interpretation of the phrase
does not in that year normally live in a country or territory".
We had the oddity of the Chief Secretary resisting an amendment that included that phrase on the ground that it could not be interpreted when in fact the clause included that phrase. We still have not heard how it will be interpreted. Perhaps at this hour of the night we might leave that problem to the Chief Secretary, and no doubt in due course

we shall be told how it will be interpreted.

Amendment agreed to.

Clause 26

CHILD TAX ALLOWANCES: STUDENTS

Mrs. Wise: I beg to move Amendment No. 105, in page 17, line 32, at end insert—
'(5) In its application to the year 1977–78 subsection (1) above shall have effect as if in subsection (2) above there were inserted after paragraph (c)(ii) the words "or
(iii) is in receipt of such a grant as is mentioned in sub-paragraph (i) above, being a grant under section 2 of the Education Act 1962, section 49(1) or 51(1)(c) of the Education (Scotland) Act 1962 or regulation 7 of the Students Awards Regulations (Northern Ireland) 1975.".'
The purpose of the amendment is to extend the provisions of Clause 26 to cover the parents of existing students on discretionary grants from local authorities.
The amendment is necessary to avoid what would otherwise be unfortunate anomalies. It is necessary to cushion the parents of students against the result of the phasing out of child tax allowances and their substitution by child benefit. Although child benefit is greatly to the advantage of the majority of parents, it does not cover young people aged 19 and over who were and are at present covered by child tax allowances.
The phasing out of child tax allowances and their non-substitution by child benefit for young people of 19 and over means parents who had taken on commitments would find that the rules had altered part way through, as it were.
The Government have made a number of attempts to avoid this particular justified complaint. One method has been to alter the parental contribution scale. But that has the unfortunate effect of not helping parents who have an income too low for them to make a parental contribution. Therefore, the Government decided, I think correctly, that the only way out of the impasse was to introduce Clause 26, which keeps child tax allowances frozen, not phased out, for the parents of existing students. The clause was improved in Committee and the time was extended from two to three years


to ensure that students on four-year courses would be fully covered.
During Committee I raised the question of students oh discretionary grants. There were encouraging noises from the Government Front Bench. I am hopeful that the Minister of State will be able to tell me that the Government accept my amendment. It is important for the parents of students on discretionary grants that they should accept it. Students on discretionary grants normally receive far less help than those on mandatory grants. Indeed, often only their fees and fares are covered. That is hardly enough to merit being called a grant.
It would be unfortunate if the parents of such students were left out in the cold. The amendment proposes to include such students for the current year only. The reason behind that is that most courses—perhaps all—that attract discretionary grants last for two years. The purpose of covering the parents who have already undertaken commitments on behalf of their sons and daughters will be met by the amendment, even though it covers only the forthcoming tax year.
I commend the amendment to the House. I hope that the encouraging noises that the Government have made will come to fruition. I hope that their kindness in suggesting that I have made out a satisfactory case means that they will accept the amendment.

Mr. Patrick Jenkin: The hon. Member for Coventry, South-West (Mrs. Wise) has made out a strong case. It was the case that I made to the House last February, when I said:
What about the child over 19 who is on an advanced course but does not have a grant, perhaps because the course qualifies only for a discretionary grant or because his parent does not qualify? Will such a child lose the child tax allowance and receive nothing in return? Has that beer thought of?—[Official Report, 9th February 1977; Vol. 925, c. 1465.]
Hardly surprisingly, I got the impression that the Minister of State for Social Security had not thought of that at all.
On Budget day, the Chief Secretary announced a substantial extension of the child tax allowance for three years. Even then the Government left out consideration of the case of a child on a discretionary grant. A number of my hon. Friends and myself have had constituency

cases involving families that have fallen fairly between all three legs of the stool. They have fallen down the hole in the middle. They receive no child benefit, no retention of the child tax allowance and no possibility of an increase in the grant.
In relation to my constituent's case, 1 asked whether the situation was intentional or whether it was casus omissus. For the benefit of the Financial Secretary, that means a case that was forgotten. I suspect that it probably was forgotten.
My constituent was under 19 years of age at the turn of the year. He became 19 one month after the child benefit scheme started. He is therefore entitled to child benefit for only one month. He is apparently entitled to nothing after that. I shall be writing to the Treasury yet again to find out whether this case has been given any relief.

10.15 p.m.

Mrs. Wise: The right hon. Gentleman's hon. Friends in Committee were also guilty of a casus omissus because they unaccountably omitted to table an amendment which would have taken care of this point. Instead, they left it to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and me.

Mr. Jenkin: Many of us have been badgering the Treasury for months and months about these cases. I think that there is a strong case here, and I hope that the Government will be able to meet it.

Mr. Denzil Davies: My hon. Friend the Member for Coventry, South-West (Mrs. Wise) argued strongly in Committee that there was a gap here in respect of those who receive discretionary grants. The problem arises where the grant is below the level of the mandatory grant. This amendment meets that point. It deals with all recipients of discretionary grants. It is difficult to isolate the one group that receives a discretionary grant which is equivalent to the mandatory grant from those who receive small loans. The amendment meets the point, although it is perhaps a little over-generous to that group. It is, however, the best way to deal with a difficult problem, and I am pleased to recommend that the House accept it.

Amendment agreed to.

Clause 27

RETIREMENT ANNUITIES

Mr. Denzil Davies: I beg to Amendment No. 21, in page 18, out lines 2 to 5 and insert
'the second and third columns there shall be substituted—


"Sum
Percentage


£3,600
18


£4,200
21


£4,800
24


£5,400
27


£6,000
30".'.

Mr. Speaker: With this we may take Amendment No. 22, in page 18, line 5, at end insert
'and for the percentages 16, 17, 18, 19 and 20 there shall be substituted, respectively, the percentages 18, 21, 24, 27 and 30'.

Mr. Davies: This amendment deals with retirement annuity relief. The matter was raised in Committee. I gave an undertaking then—and despite it the Opposition divided the Committee—that we would look at the limits of special rates for older people. I am glad to say that the amendment fulfils that undertaking. Indeed, it goes a little further than an amendment moved in Committee which was more limited in the percentages proposed. It gives a better profile, as it were, in that the steps are more gradual, going up to 30 per cent. at top level.

Mr. Paul Dean: I am grateful to the Minister of State for listening to the pleas made in Committee and to the plea that I made for the self-employed annuitants on Second Reading on 28th April. I declare an interest in pension matters.
Although Amendment No. 22, standing in my name, is similar to Amendment No. 21, I put it down very much on the principle that half a loaf is better than no bread. I welcome the obvious improvements that Amendment No. 21 represents, but at the same time I must put it to the Minister that it is not adequate in modern conditions and perhaps is not the best way of dealing with the problem. I want briefly to put two propositions which seem to me relevant.
First, many, though not all, self-employed people cannot possibly make pension provision for themselves or their wives under the present retirement annuity

arrangements. They cannot possibly hope to keep pace with the rate of inflation without putting aside more money than the present regulations will allow. In other words, they are being condemned to lose out in the inflation race. It might be that in many cases they are not in a position to afford even what the amendments will allow, but I put it to the Minister of State that in those cases where they can be afforded, the present arrangements are not adequate when one takes into account the rate of inflation.
The second proposition is that even under these more favourable arrangements there will be a positive discrimination against the self-employed when one takes account of the new pension arrangements that are coming into operation next April for employees. There are two reasons for that assertion. As from April 1978, under the new pension arrangements there are two new important safeguards for retirement. Pension contributions, whether to the State scheme or to a contracted out scheme, will be on an escalator. They will be revalued annually in line with the increase in average earnings. In addition, pensions in payment will also be on an escalator. They will be increased annually in line with increases in prices, up to the guaranteed minimum level. The State will meet the cost of this guarantee for both the State and the occupational pension.
There will be those two important additional safeguards for employees as from next April, but the self-employed will get neither of them. They are excluded from the new arrangements. I do not wish to argue the merits of that tonight. It might be that in all the circumstances the Government were right to decide not to include the self-employed in the new arrangements, but the point is that they are excluded from the new guarantees that are being introduced for employees.
Because they are excluded, the Government have a special obligation to provide a fair deal for the self-employed to enable them to provide reasonable security for themselves and their families. I submit that even with the improvements in the amendments the present arrangements do not measure up to those criteria. If it is thought right for the State to lay down a standard for employees, it should


be equally right that a similar standard should be available for the self-employed.
The main problem will arise with older people who have not so far made adequate provision for themselves. It might be asked why during the early part of their working life they have not made adequate provision. As the House knows, there are very good reasons why that might not have been possible. A self-employed person building up a business needs to put back into the business every penny that he is not paying in taxation. He is ploughing back his money in the earlier years of his working life, and he cannot afford to put money into a retirement annuity. That is one large group of people about whom we are talking who reach middle age or even later without having the opportunity to build up provision for their retirement.
There is another equally important group, and that is those large numbers of self-employed who, for the first part of their working life, have been employees and therefore have not been able to take advantage of these arrangements. It might be that in these cases they have some preserved pension rights as employees, but these will often amount to very little in value. It is wrong to assume that contributions will be made by the self-employed over a 40-year period. That is more likely to be the exception than the rule. Late entry will be more usual.
I am not asking for anything exceptional. Most employees can get a two-thirds pension with only 10 years' service and can top up their contributions towards the end of them working life. What is already available to employees, who also have the other advantages to which I have referred, should be similarly available to the self-employed.
I commend to the Government the suggestion of the Consultative Committee of Accountancy Bodies, the Institute of Actuaries, the Bar Council and the Law Society who suggest, with the support of the National Federation for the Self-Employed, that, shortly before retirement, a self-employed perm should be allowed to make a single premium payment, up to an amount sufficient to secure a two-thirds pension on the basis of some average

of final earnings, with tax relief being spread back over, say, six years. Without such a provision, the self-employed will not be in a broadly equivalent position to employees.
I realise that, in this Bill, the Government will go no further than the welcome amendment for which I commend them. However, it is not adequate and something along the lines of what I propose is necessary if we are to give the self-employed a reasonable chance to provide adequate security for themselves in retirement.

Mr. David Howell: My hon. Friend the Member for Somerset, North (Mr. Dean) has campaigned with great vigour over the years for the self-employed and particularly in relation to provision for their retirement.
This part of the Bill deals with non-pensionable employment and the position of those who wish to put aside something for their old age but who are not covered by employee pension arrangements. We pressed the case of these people in Committee and received a moderately sympathetic reply. The Minister of State undertook to look at the point made by my hon. Friends, though he said he would not consider those born after 1915. He was wedded to 1915 for reasons that were not made fully clear.
The Minister has looked at the question of changing the percentage figures over the full range laid down in existing legislation and has brought forward the modest amendment. I join other hon. Members in asking why we need these restrictions on those who wish to put aside some money to provide for retirement. We may have to examine the fundamental questions behind all these rules and regulations. In the meantime, the amendment is a small step forward and is all the more welcome from a Government that is the hammer of the self-employed. I know that they do not take the issue of the self-employed seriously, except to give them an occasional kick. At the moment they have stopped doing that and have given them a slight benefit. We welcome it from the Conservative side.

Amendment agreed to.

Clause 30

EARNINGS FROM WORK DONE ABROAD

10.30 p.m.

Mr. Joel Barnett: I beg to move Amendment No. 23, in page 19, line 16, at end insert '(a)'.

Mr. Deputy Speaker (Mr. Oscar Murton): With this we may take Government Amendments Nos. 24 and 80.

Mr. Barnett: The purpose of the amendment is to extend the transitional provisions in Clause 30(4).

Amendment agreed to.

Amendment made: No. 24, in page 19, line 19, at end insert
'; or
(b) under paragraph 1 of Schedule 2 to the said Act of 1974 for a year before the year 1977–78 by virtue of a period falling partly in that or a subsequent year.'.—[Mr. Joel Barnett.]

Orders of the Day — Schedule 7

EARNINGS FROM WORK DONE ABROAD

Mr. Joel Barnett: I beg to move Amendment No. 79, in page 68, line 23, leave out ' during ' and insert ' in the course of '.
The amendment meets an undertaking that was given in Committee.

Amendment agreed to.

Amendment made: No. 80, in page 69, line 8, at end insert—
'(5) In relation to the year 1977–78 references in sub-paragraphs (1) and (4) above to a qualifying period include references to any period beginning before and ending after the commencement of that year which—

(a) is a continuous period of absence from the United Kingdom as defined in paragraph 2 of Schedule 2 to the Finance Act 1974; and
(b) so far as it falls after the commencement of that year, is (or is part of) a qualifying period as defined in sub-paragraph (2) above.'.—[Mr. Joel Barnett.]

Mr. Joel Barnett: I beg to move Amendment No. 81, in page 69, line 13, leave out paragraph (b) and insert—
'(b) the number of days in that year which are qualifying days in relation to the employment (together with any which are qualifying days in relation to other employments) amounts to at least 30,'.

Mr. Deputy Speaker: With this we may take Government Amendments Nos. 82, 86 and 87.

Mr. Barnett: This group of amendments meets an undertaking that I gave in Committee.

Mr. Ian Stewart: At the risk of spoiling the rhythm of the House, I wish to raise one specific problem in relation to this group of amendments and the question of qualification by apportionment of time. We had a long discussion in Committee which has borne fruit. The Chief Secretary has brought forward a number of amendments.
After the Budget, the Inland Revenue issued a Press announcement on the subject of foreign earnings, and in relation to the qualifications for the 25 per cent. deduction the announcement included the following statement:
An employee with a separate employment with the foreign company, the duties of which are performed wholly abroad (for example, a director of an overseas company in a multinational group) will be entitled to a deduction of 25 per cent. from his earnings from that employment, regardless of the length of his absence abroad.
Does the Bill as it stands, or with this group of amendments, give effect to this undertaking?
There is one case in which I think the question is rather doubtful. That is where an individual who is resident in the United Kingdom, and has regular employment with a company in this country, also has another regular employment with a company abroad in the same group. This is quite a common instance in the case of British companies with extensive interests overseas. As things stand, the income from such a foreign employment has generally been taxable in the hands of the individual under Schedule E, Case 1, but there was a 25 per cent. exemption on the whole of that income under the Finance Act 1974, so long as the amount of that income would not have been affected whether or not the same person carried out his duties in the United Kingdom.
Under the provisions of the Bill, the income from a foreign employment in these circumstances would not apparently attract the 25 per cent. exemption automatically, and it seems that the exemption would now be subject to an apportionment qualification. If that is the case.


it would not be a concession for this particular group of exporters. It would be an additional qualification, or in many cases it would add to their burden of taxation.
I understand that representations have already been made to the Chancellor about this point, and therefore the Treasury Ministers will have had time to consider it. Do these amendments relieve this problem? If, as I fear, they do not, is it a deliberate but an unannounced change in Revenue intentions? If that is what it is, will the Chief Secretary, either now or as soon as he is in a position to do so, explain why such a change may have Waken place?

Mr. Joel Barnett: In fact, Amendment No. 81 is a drafting amendment, but the others relate to the question of a day and how one defines a day. I assure the hon. Gentleman that this fulfils the undertaking which I gave in Committee. However, I have taken careful note of what he said, and if by any chance we have not met the point which he made, I shall be in touch with him.

Amendment agreed to.

Amendments made: No. 82, in page 69, leave out lines 20 to 27 and insert—
'(2) For the purposes of this paragraph a qualifying day in relation to an employment is a day of absence from the United Kingdom—

(a) which is substantially devoted to the performance outside the United Kingdom of the duties of that employment or of that and other employments; or
(b) which is one of at least seven consecutive days on which the person concerned is absent from the United Kingdom for the purpose of the performance of such duties outside the United Kingdom and which (taken as a whole) are substantially devoted to the performance of such duties as aforesaid; or
(c) on which the person concerned is travelling in or for the purpose of the performance of such duties outside the United Kingdom.'

No. 86, in page 70, line 24, leave out from 'assessment' to 'the' in line 27 and
insert:
'which are shown to be qualifying days (as defined in paragraph 2(2) above) in relation to'.

No. 87, in page 70, line 32, leave out from 'where' to end of line 36 and insert:

'a day is a qualifying day in relation both to the relevant employment and one or more other employments that day shall, for the purposes of paragraph (a) above, count in relation to the relevant employment as the fraction arrived at by dividing the day equally between the different employments '.—[Mr. Joel Barnett.]

Orders of the Day — Clause 31

EARNINGS IN CONNECTION WITH WORK DONE ABROAD

Mr. Joel Barnett: I beg to move Amendment No. 25, in page 19, line 29, leave out from been ' to end of line 37 and insert—
'necessarily incurred in the performance of the duties of the overseas employment expenses of the employee in travelling from the United Kingdom to take up the overseas employment and in returning to the United Kingdom on its termination;'

Mr. Deputy Speaker: We may take at the same time Government Amendment No. 26.

Mr. Barnett: These amendments also fulfil an undertaking which I gave in Committee.

Amendment agreed to.

Amendments made: No. 26, in page 19, line 38, leave out 'paragraph (a) or (b)' and insert 'this subsection'

No. 27, in page 20, line 12, at end insert—
'(3A) Subsection (3B) below applies where a person resident and ordinarily resident in the United Kingdom—

(a) holds two or more offices or employments the duties of one or more of which are performed wholly or partly outside the United Kingdom; and
(b) travels from one place having performed there duties of one office or employment from to another place for the purpose of performing duties of another office or employment (the emoluments from which are not foreign emoluments within the meaning of paragraph 1 of Schedule E),

and either or both of those places is outside the United Kingdom.
(3B) For the purposes of section 189(1) of the Taxes Act (deduction for certain expenses) expenses incurred by such a person on such travel shall be treated as having been necessarily incurred in the performance of the duties which he is to perform at his destination; and if travel is partly for the purpose of performing those duties and partly for another purpose this subsection applies only to such part of the expenses as is properly attributable to the former purpose.'—[Mr. Joel Barnett.]

Amendment proposed: No. 28, in page 20, line 16, leave out from 'and' to end of line 23 and insert—
'applies to travel of the following descriptions between the United Kingdom and the place of performance of those duties, that is to say—

(a) any journey by his spouse or any child of his—

(i) accompanying him at the beginning of the period of absence; or
(ii) to visit him during that period;

(b) any journey by him at the end of that period to visit his spouse or any child of his;
(c) any return journey following a journey of a kind described in paragraph (a) or (b) above;

but that subsection does not extend to more than two journeys in each direction by the same person in any year of assessment.'—[Mr. Joel Barnett.]

Mr. David Howell: The House is being taken through these amendments at a rattling pace, and that, no doubt, is welcome to very nearly all those concerned, but there are one or two matters to which attention should be directed.
Am I right in thinking that this amendment was brought forward to deal with the question of a family visiting an overseas employee? I believe that we argued in Committee that there was a case for further relief in such a situation, and I recall that the Chief Secretary—or perhaps the Financial Secretary—undertook to bring forward amendments accordingly. Will the right hon. Gentleman confirm that this is the amendment which I have in mind?

Mr. Joel Barnett: Yes. The hon. Gentleman is quite right.

Amendment agreed to.

Orders of the Day — Clause 32

LIVING ACCOMMODATION PROVIDED FOR EMPLOYEE

Mr. Peter Rees: I beg to move Amendment No. 31, in page 21, line 29, leave out from beginning to end of line 41 and insert
'where having regard to the duties of the employment it is reasonable that it should be provided for him'.

Mr. Deputy Speaker: We may take in this group Amendment No. 32, in page 21, line 35, leave out ' customary' and insert ' appropriate'.
We may also take Government Amendments Nos. 33, 34, 49 and 89.

Mr. Rees: After the storm and stress of last week, when we debated grand questions of policy and macro-economics, we take up a rather fine brush now to fill in the details of the Finance Bill, but sometimes these miniatures or smaller pictures tell us a little more about the Government than might at first sight appear. I suggest that Clause 32, without the amendments which I urge are needed to embellish it, indicates a degree of ineptitude and meanness which I certainly would not attribute to the Financial Secretary, and I can only suspect that it derives from his hon. Friend the Member for Dudley (Dr. Gilbert), who played a certain part in our debates last year.
Last year the Government were minded to have a further look at benefits in kind—fringe benefits, as they are sometimes unattractively and unkindly called. I can only assume that the provisions then introduced were designed as a crust to be thrown to their right hon. and hon. Friends below the Gangway to satisfy the hon. Member for Coventry, South-West (Mrs. Wise), who presented herself this evening as a kind of tricoteuse sitting below the financial guillotine. Whether it satisfied the hon. Lady, I do not known. She still seems to be thirsting for fiscal blood.
As we looked more closely at the clauses introduced last year, we realised, with wry amusement, although it must have sent a thrill of horror through the Financial Secretary, that the proposal was likely to impose a charge to tax on such a wide and representative group of his fellow countrymen as the Prime Minister and the Archbishop of Canterbury, not to mention a few less well known inhabitants of this country.
Speaking for myself, I have always believed that people in positions of responsibility should be properly housed and properly remunerated. Those who discharge onerous responsibilities on behalf of the electors should be able to receive their foreign colleagues in an atmosphere of dignity, perhaps not of magnificence in these tawdry times, but at least of modest comfort and elegance and they should not be exposed to undue fiscal impositions.
I have never believed that this kind of privilege, if that is how we should describe it—I should have thought that it was a concomitant of high office—should be limited to those who hold positions of office under the Crown. The general secretary of the National Union of Mineworkers holds a position of great responsibility. He may well have to entertain foreign dignitaries, whether from East Germany or other countries—let us not particularise on the geographical location of the visitors these people may be called upon to entertain—

Mr. Russell Kerr: What about someone from Fascist Spain?

Mr. Rees: I am not aware that Spain should any longer be regarded as Fascist. The hon. Gentleman appears to be incapable of making a coherent speech on his feet, but he is ever ready to intervene from a seated position. I am willing to give way to him—

Mr. Deputy Speaker: Order. Sedentary observations do not help the House. We seem to be drifting away from the subject of the amendment.

Mr. Rees: I am, as always, grateful for your protection, Mr. Deputy Speaker. My sensitive nature recoils from the coarse and brutal interventions of the hon. Gentleman.
May I recount for the benefit of those hon. Members who did not have the privilege of hearing our debates in Standing Committee the history of these amendments. It must have been with a thrill of horror that the Financial Secretary realised that he had placed his political career in jeopardy by threatening a fiscal impost on the Prime Minister, the Foreign and Commonwealth Secretary, the Chancellor of the Exchequer and a whole range of other Government dignitaries in the measures which he proposed last year. When this was drawn to his attention in the most amiable and moderate way by the Opposition, he retreated and said that he would refer the whole matter to a departmental committee. Presumably the results of that committee's deliberations are embodied in—and I refer to the Bill as amended in Committee—Clause 32.
As you, Mr. Deputy Speaker, will have divined immediately on looking at the clause, it exhibits one or two peculiarities

which were the subject of considerable debate upstairs. Since not all my right hon. and hon. Friends, nor even hon. Gentlemen opposite, were privileged to hear our debate, it would be presumptious of me to presume that they had read the Hansard report.
10.45 p.m.
If refer the House to the scope of Clause 32. A charge to tax is to be imposed on those who have accommodation provided for them by their employers—the definitions of employer and employee are given a fairly wide scope—unless they can bring themselves within the three relieving paragraphs of Subsection (4).
I apologise at this late hour for referring the House to the slightly laboured details of a Finance Bill, but it is important if one is to see just how deeply enmeshed the Financial Secretary has become, how ineptly his brief has been drawn and how impossible the task that has been posed by the draftsmen to refer the House to these three paragraphs.
Paragraph (a) relates to employees, whether a Crown servant or the employee of some private or public company, and states:
where it is necessary for the proper performance of the employee's duties that he should reside in the accommodation".
I suppose that relates to the time hallowed test with regard to Schedule 1 that expenses should be wholly, exclusively and necessarily incurred
I do not make too much of a point about that, except to observe, because the Financial Secretary was prone to remark on the modest amendment that I moved in Committee, that my amendment would occasion a certain difficulty with regard to Courts and the Inland Revenue. Even that test, well worn though it may be, and even though it may have been examined by the courts over the generations, could still occasion a certain difficulty.
I come to paragraph (b) which states:
where the accommodation is provided for the better performance of the duties of his employment, and his is one of the kinds of employment in the case of which it is customary for employers to provide living accommodation for employees.
That, too, is a comprehensible and intelligible test. But I venture to observe that that, too, might occasion a certain


amount of difficulty when it comes to be applied to the facts of a given situation.
I also observe—this is the point of the second amendment standing in my name —that I see no particular point in limiting it to those cases where it has been "customary" for an employer to provide accommodation for his employees. Why "customary"? What does that add to the test? Why is it necessary? For the protection of the Revenue or the general body of taxpayers? Does it mean, for instance, that a person may have to limp on for two, three or four years in his accommodation, paying tax under Clause 32, until in the fourth year the Board of Inland Revenue says "Now your occupation has become customary we are not going to impose a charge to tax"?
That strikes me as a rather artificial test to be applied that that is why the second amendment, which I commend to the House, suggests that it should be "appropriate" in that particular case to provide employees with accommodation.
But now I come to the meat—that perhaps is a rather unattractive metaphor—and the most significant of the escape hatches, as we chose to describe them upstairs, which are enshrined in Clause 32. It bears studying rather closely. Paragraph (c) reads:
where it is provided for him as the holder of an office or employment under the Crown and the Secretary of State certifies that there exists a special threat to his security and, accordingly, that special security arrangements are in force".
I yield to none in my concern for the safety and the security, as well as the dignity, of officers and employees of the Crown. But it occurred to me, even with my naive and benevolent approach to these matters, that this paragraph had been drawn to exclude Ministers of the Crown from the ambit of Clause 32. There may be one or two others and, if so, the Financial Secretary will enlighten us.
It is right that we should be concerned with the care and welfare of the Prime Minister, the Foreign Secretary and the Chancellor of the Exchequer. But I detected during our debates in Committee a certain unease unusual to find in the Financial Secretary who, although given the most disagreeable tasks by his colleagues, still ploughs on with a reckless

disregard for the sensitivities of Opposition Members. The right hon. Gentleman affected on that occasion to take no account of what we were saying. But I am happy to note that there is a Government amendment which extends this protection to anyone, whether a Crown employee or not.
Since the objection raised to my amendment in Committee—which is not substantially or in principle different from this one—was that it would be difficult to apply and that it would raise practical problems, the amendment which is designed to supersede paragraph (c) does not contain the provision that the Secretary of State—presumably the Home Secretary —should certify that there exists a special threat to the security of the employee concerned.
I am delighted that paragraph (c) should have been amended and should no longer be restricted to employees of the Crown. But I wonder how this test will be applied in practice and whether the Financial Secretary can assert with as much confidence as he did in Committee —[Interruption.] If the hon. Member for Feltham and Heston (Mr. Kerr) wishes to intervene, I shall be happy to give way to him. Apparently he does not wish to get to his feet. I proceed as well as I can in the face of ill-thought-out, deeply prejudiced and unhistorical objections from the hon. Gentleman.

Mr. Russell Kerr: A babe in arms.

Mr. Rees: We have been prone since last Wednesday to debate the ages of hon. Members, so it is rather flattering to discover that I am regarded as a babe in arms. In political subtlety, perhaps I am. I would never attempt to devise a provision which could have had as its intention only that Ministers of the Crown should be excepted from the general impost of tax.
The amendment sweeps away paragraphs (a), (b) and (c). It requires merely that this exemption from tax shall apply only where it can be demonstrated that it is appropriate, having regard to the duties of the employee's position, that he should be provided with accommodation. That is a simple test, it is a succinct test, and it is an equitable test in that it would apply to every one of Her Majesty's subjects, whether he happened to hold the high office of Prime Minister


or was merely an employee of some public or private company.
On pondering the question, the House may realise that in fiscal matters it is right that we should not devise these specially tailored loopholes so that people who hold high office under the Crown should escape a burden of tax which is imposed on other subjects when there is no point of principle to distinguish their positions.
Let me say, lest I be misunderstood, that I believe that the Prime Minister, the Foreign Secretary, our Ambassador in Washington and the Chancellor of the Exchequer should be suitably housed. I have never aspired to visit the houses or flats in Kennington or Lord North Street that the Prime Ministers occupy, but I believe that they should be enabled to entertain with elegance, dignity and comfort those who are called upon to visit this country.
But it must be remembered that there are others, albeit in the private sector, who discharge responsibilities of a similar nature. I see no reason—and I say this at the risk of provoking some labour Members—why the chairman of Lonrho should not be able to entertain visiting dignitaries from—and I know that I will carry many Labour Members with me on this point—the African continent who may be moved to come to the United Kingdom to do business with his company at considerable advantage to the shareholders. I declare at once that I or my wife have a modest shareholding in Lonrho, but I do not press its case merely for that reason. We have to be scrupulous on these occasions.
I am led to make this point—and I hope that I shall not be misunderstood. Tomorrow we shall be debating very delicate questions of honour and political propriety. We in this House, because we have been carefully instructed, understand the fine lines that we must not transgress, but those outside are perhaps less instructed in these matters. They perhaps do not understand the delicate conventions that confine our debates. I hope that when they study this provision they will find it unattractive and unappealing that these matters have been drawn so as to exclude various of their fellow countrymen who occupy high positions

of State from a charge to tax in this respect.
I appeal to the Fnincial Secretary—who is not only an honourable Gentleman but a right hon. Gentleman and a man who, when his official brief permits, is a person of sensitivity, not to say sensibility—to appreciate the enormity of Clause 32 as it stands and to accept Amendments Nos. 31 and 32, which perhaps will restore some faith to the country in the honour and good sense of this Administration.

11.0 p.m.

Mr. Robert Sheldon: The hon. and learned Member for Dover and Deal (Mr. Rees) referred to the purpose of the clause and showed that it derived from the Government's decision to tax those benefits in kind—those advantages—that are given to some employees in lieu of money and should come under the tax system, as do a number of other benefits which had been taxed before the introduction of the new legislation.
What we dealt with in the Bill this year was the problem of representative accommodation, where people have homes or residences provided for their use and may be called to pay tax upon them. Obvious examples are caretakers looking after schools and prison officers. A number of others have to live in such accommodation for the proper performance of their duties. Sometimes the accommodation is not that which they would normally select if they had a choice.
That is the reason for the examination that I announced during the passage of last year's Finance Bill, when I said that representative accommodation would have to be studied and that decisions would be announced this year. The first test for exemption from tax devised in this Bill was that it was necessary for the proper performance of their duties for people to reside in the accommodation, or that doing so made for the better performance of the duties, or that it was customary for employers to provide that kind of accommodation for their employees. Another test was that there existed a special threat to the security of the person concerned and that special security arrangements were in force.
Those are reasonably precise tests, tests that can be substantiated and proved. The


hon. and learned Gentleman seeks to insert in their place vaguer tests of the kind that we see in Amendments Nos. 31 and 32. Amendment No. 31 would remove all the tests that I have described and substitute the test that it is reasonable that the accommodation should be provided. Reasonableness in these matters is astonishingly difficult to prove. It can be held to be reasonable because the accommodation is easy to get to. Under that test a whole range of new representative occupiers could be created.
Incidentally, last week the Opposition accepted the test that we had devised for mortgage interest relief for representative occupation. It is only right that the test for that relief should be the same as that for representative occupation more generally.
Amendment No. 32 proposes an even vaguer test—that the accommodation is "appropriate". "Appropriate" is as loose a definition as one can devise. It could cover almost every advantage of this kind that an employee desired or was given by a generous employer, and such advantages would thus escape the ordinary tax net to which others would be subject. The term is so hopelessly wide as not to be worthy of serious consideration in this narrow aspect of paragraph (b). Government Amendment No. 33 would extend the security test to employees generally, beyond merely those in the Government's employ. The hon. and learned Gentleman welcomed this change.
One change that the hon. and learned Member did not mention was that Government Amendment No. 34 includes directors in those benefiting from the advantages of the security test in cases where they would normally be excluded. The whole of this legislation deals with directors or those earning in excess of £5,000 a year.
We believe that where a higher-paid employee or director is given accommodation for reasons of security, the charge to tax should not apply because this is an absolute test which can be checked more readily.
Finally, we have Government Amendments Nos. 49 and 89 which are concerned with mortgage interest relief in job-related accommodation. One of the great advantages we have had in introducing

the representative accommodation principle is that it has enabled us to grant mortgage relief to people buying their own homes who have to live in accommodation that is provided by their employers.
Hon. Members have raised this from time to time over the years, and it is the very insistence on these new tests that has enabled us to deal with the problem. People such as clergymen, who have to live most of their lives in accommodation that is quite unsuitable for what they would require normally, who want to make provision for their retirement, and who were not able to get mortgage relief in the past, will now be able to do so.

Mr. David Howell: It would be wrong to let this debate pass without commenting on Government Amendments Nos. 33 and 34, which are in response to the worries, if not the direct demands, of my hon. and learned Friend the Member for Dover and Deal (Mr. Rees).
My hon. and learned Friend reminded us that this seems to exempt from the full tax penalties of the clause certain persons living in representative accommodation. Two things have happened since the debate in Committee upstairs. A new concept has come into the legislation of job-related accommodation. This has been raised in connection with the Government's move to give mortgage relief to those who are living in one house that is related to their jobs, while trying to buy another house. Government Amendment No. 33 is an attempt to bring Clause 32 in the Bill into line with the earlier new clause to do with job-related accommodation for those requiring mortgage relief, and not hitherto entitled to it.
The Government amendments make the position a little less unfair and a little less vulnerable to query and doubt. The whole legislation and the tests seem to have been devised specifically to accommodate—if I may use that word in this context—the position of Ministers of the Crown who find themselves provided with flats, apartments and houses at the expenses of the State, and of whom there are a limited number in any Government.
I make it quite clear that we, on this side of the House, believe that it is right that those who, however temporarily,


hold positions of high office in this country should have the appropriate accommodation to entertain and carry out functions associated with their office. But we looked at the clause upstairs in Committee and said that it was too blatant. It appeared to be a device specifically to exclude those who happened to be employed by the Crown to make them—surprise, surprise—exempt from the tax penalties of the clause.
The Government's amendments extend the exemptions under the clause. Now, instead of it being employment under the Crown, it is as set out in Amendment No. 33:
where, there being a special threat to his security, special security arrangements are in force and he resides in the accommodation as part of those arrangements.
That is an improvement. But it still will not quite do because, as we discussed upstairs, certain people—Ministers of the Crown are some of them—reside in accommodation for one reason or another. They are senior and lucky enough. They qualify, because they pursue their jobs in a better way, under subsection (4)(a) and (b), but they are not necessarily there for security reasons. Similarly, Ministers of the Crown who need security protection do not have special accommodation.
The two issues are still separate. Everyone knows, from the practices of successive Governments, that they remain separate. The attempt to try to bring them together as a devise for avoiding the imposition of awkward tax penalties was not very desirable or creditable in the earlier version of the clause, and it is only slightly better now. However, this is an improvement.
I put on record that we are still not satisfied with the situation that has arisen largely because of the Government's early attempts to produce detailed and minute legislation to improve, so they say, the effects of the employment tax legislation. We always doubted whether it would lead to real benefits. We believed that it would lead to difficulties. This is one difficulty, and the Government are still struggling to get out of it. That is the position. But we should be grateful for the small mercy that the Government are

trying to make matters a little less bad than they were.

Amendment negatived.

Amendments made: No. 33, in page 21, line 37, leave out paragraph (c) and insert—
'(c) where, there being a special threat to his security, special security arangements are in force and he resides in the accommodation as part of those arrangements'.

No. 34, in page 22, line 5, leave out from 'company' to unless ' and in-sert—
'then, except in a case where paragraph () of subsection (4) applies, no exemption is given by virtue of that subsection '.—[Mr. Joel Barnett.]

Orders of the Day — Clause 33

EXPENSE CONNECTED WITH LIVING ACCOMODATION

Mr. Nicholas Ridley: I beg to move Amendment No. 36, in page 23, line 4, leave out from 'where' to 'living' in line 6.
This amendment, which deals with the treatment of expenses in connection with living accommodation, should perhaps have ben taken with Amendments Nos. 37 and 38. I believe that would make more sense of the suggestion that we put forward.
The position is that, if a person is neither a director nor earning £5,000 a year, any expenses in connection with living accommodation that is provided by his employer are in no way chargeable to tax. A director or a higher paid employee—someone earning more than £5,000 a year—is liable, unless he can go through the gateways that we debated on the last amendment, to pay tax on the full cost of the expenses. However, a director or a higher paid employee who qualifies for any of the loopholes that we have discussed in Clause 32(4) (a), (b) or (c) will find that Clause 33 applies to him. I want to point to the anomalous position that is thereby created. Surely if, due to the nature of his job, somebody is forced to live in a particular house, he should be relieved from having to pay the expenses of the house that he does not then have to keep.

11.15 p.m.

If we are to tax these expenses for some, it seems hard not to tax them for everyone. It would be a fair argument to say that those who have to live in accommodation because of the nature of their employment should not be taxed on the expenses in connection with that employment. But that is not what the law states. It says that certain categories will be taxed more, some will be taxed less and others taxed not at all. It is the discriminatory nature of the legislation to which I object.

The particular set of expenses set out in Clause 33 which will become Section 63(a) of the 1976 Act are fairly onerous but they are not as onerous as the expenses which those who cannot claim Clause 33 benefits will have to pay. I wonder whether it is right that the three categories should apply. The categories that must pay extra tax on expenses under Clause 33 are relatively privileged and yet the expenses on which they will have to pay tax are heavy. Their position is made worse by the Government amendment No. 41.

The expenses of all who live in accommodation provided by their employer should be treated the same. The amendment would achieve that if it were taken with the two other amendments. The amendment is designed to go with the two other amendments.

Mr. Robert Sheldon: The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has raised the question of those who earn less than £5,000 a year and who are not directors. He has examined their position in contrast to that of those who are either higher paid or directors. He has shown that they have certain advantages in not having to pay tax on certain benefits received as a result of their employment. That is not an argument that is attractive in any part of the House.
The regulations relating to benefits in kind concern those who are either higher paid or who are directors. The Government are not seeking to extend taxation from such people. The charge to tax applies to salaries above that level. There is no intention to move to a lower threshold. We cannot accept the hon. Member's approach to this peculiar principle of equity to which he aspires.

Mr. Ridley: Amendment negatived: I cannot let that remark go without another word. The right hon. Gentleman said "the peculiar principle of equity to which he aspires". Why is the principle of equity peculiar? The right hon. Gentleman is selective in his choice of which equity suits him. That is reprehensible. In a cavalier fashion he said that this clause applies only to directors and the higher paid. He is willing to clobber the directors and higher paid. In equity he should apply the same tax laws to all. I object to the last discriminatory passage in his speech.

Mr. Peter Rees: I beg to move Amendment No. 39, in page 23, line 13, at end insert,
'excess of normal requirements in'.

Mr. Deputy Speaker: With this we may take Government Amendments Nos. 41 and 88 and Amendment No. 42, in page 23, line 20, leave out
'which are normal for domestic occupation'.

Mr. Rees: It is true that, in form or maybe even in substance, Clause 33 is a relieving provision in that it is designed to limit the charge to tax on those who occupy accommodation for which they are not charged tax under Clause 32 in respect of what one might call ancillary matters such as heating, lighting, repairs and the provision of furniture. Speaking entirely for myself, it was only when I read Clause 33 that I appreciated that a whole range of people I had always regarded as exempted from tax in the occupation of their houses—whether they be the Prime Minister, our Ambassador in Washington or the head of some Oxford college—whether through inadvertence or malevolence on the part of the Financial Secretary, are in fact subject to charge to tax.
We had an extensive debate on this issue in Committee upstairs. Hand in hand with the Financial Secretary, we went through the rooms, as I recall it, of our embassy in Paris and attempted to determine what the measure of the charge would be on the unfortunate incumbent of the high office of ambassador. I remained utterly unclear at the end of it what was the scope of the charge.
The right hon. Gentleman seemed to suggest at some point that there would


be certain rooms in the house where the furniture would not impose a charge to tax because they were rooms for formal entertainment, but that in the more domestic, more intimate rooms occupied by the ambassador there would be a charge, and it would be limited to one tenth—this will be, small consolation to him—of his emoluments.
Again, it was not clear whether the emoluments which were to be the measure of the relief were monetary emoluments or emoluments couplied with fringe benefits described in Clause 33. The purpose of the amendment is to probe once more, with faint hope perhaps of eliciting a sensible answer from the right hon. Gentleman, exactly what is the scope of Clause 33.
I want perhaps, if I can, now that the right hon. Gentleman has disentangled himself from my hon. Friend the Member for Cirencester arid Tewkesbury (Mr. Ridley), to focus him for the moment on some of the difficulties. Are we to understand, for example, that a person who is in occupation of a house covered by subsection (4) of Clause 32 is to be afforded relief under Clause 33 only, for instance, in respect of furniture which is normal for domestic occupation but that in respect of furniture which is abnormal for domestic occupation he is not?
I understand, for instance, that No. 10 Downing Street has considerable pieces of eighteenth-century English furniture and some remarkable pictures. Is no relief to be afforded to the Prime Minister in respect of that furniture? Are we to understand that the head of an Oxford college who may have some fine pieces of furniture, not of his choice but that of his predecessors or of the college itself, in his wife's bedroom is to get relief under subsection (3) of Clause 33?
The right hon. Gentleman was not entirely helpful in his replies in Committee, and therefore I want to direct his attention back to these considerable problems because unless they are resolved satisfactorily—[Interruption.] I do not know what the aspirations of the hon. Member for Eccles (Mr. Carter-Jones) are. It may be that he does not aspire to be Prime Minister or ambassador in Washington. But if he does he must listen with considerable care to the answer that

I hope the Financial Secretary will give us tonight.
Various people are required by statute to occupy particular accommodation. I think that I carry the House with me on this. It would be particularly hard if they were subject to tax without proper relief because, fortunately or unfortunately, their house was furnished with furniture of a certain elegance and distinction.
I think I detect a certain malevolence, even a certain ineptitude, in some of the provisions for which the Financial Secretary has been responsible. It might be that he will pass the responsibility back to his right hon. Friend the Member for Dudley, East (Dr. Gilbert) whom I see lurking a little uncertainly by your Chair, Mr. Deputy Speaker. Perhaps I should not endeavour to draw two Front Bench spokesmen into this debate, although no doubt their contributions would be listened to with fascination and respect. [Interruption.] If the hon. Gentleman is not concerned with the fascinating debate on cherished number plates, he had better treat my intervention with a little more courtesy and and self-restraint than he is prone to do at the moment. Whether it is the Financial Secretary or the right hon. Member for Dudley, East who replies to the debate, I hope that we shall have an informative reply to this amendment.

Mr. Ridley: I want to say a word about Amendment No. 41, which is in the name of the Chancellor of the Exchequer. We pressed hard to have the words "other than structural repairs" defined more accurately, because this provision could be a major burden upon taxpayers. Instead of seeking to limit and define them, the Government have removed those words by this amendment, which will make the burden even greater. Although the Government expressed great sympathy in Committee with our problem, instead of meeting the point they have made things worse, and I should like the Financial Secretary to say why.
The right hon. Gentleman believes that the master of an Oxford college should be charged to tax every time a new roof has to be put on the master's lodgings, or repainting has to be done outside, or if the fellows decide to extend the lodgings to include an extra tutorial room


or some matter of that sort. He thinks that that should be regarded as a charge to tax upon the master. This is a most retrograde amendment, and I hope that the Minister will not move it.

Mr. Robert Sheldon: Perhaps I can deal first with Amendment No. 39, which was moved by the hon. and learned Member for Dover and Deal (Mr. Rees).
This amendment to the 1976 Act allows directors or higher-paid employees with excessive expenditure on services—those who are in receipt of very high levels of quality of service—to be assessed at not more than 10 per cent. of their emoluments. The reason is that in a number of Oxford colleges, or even in a caretaker's lodgings, there might be a level of services in excess of those that would normally be required by the person living in that accommodation. Therefore it was felt right that there should be an upper limit and that was fixed at 10 per cent. of pay.
The hon. and learned Gentleman's amendment accepts that, but those with more modest expenditure are to be taxed on the whole of those services. I fail to understand why the amendment has been moved. I can only assume that either there is an error, or there is some explanation that the hon. and learned Gentleman has not given to the House. If he seeks to give a fuller explanation, I shall be happy to receive it.
11.30 p.m.
We are talking about appurtenances that would be normal for domestic occupation. The provision is necessary in order to ensure that those things that are nothing to do with furniture should not be free of tax, otherwise on advantage could be given to some people by claiming that certain fittings, for example, were appurtenances. Our provision limits such services to those that one would normally expect to be treated as services.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was right in saying that Amendment No. 41 does not meet the case that he made in Committee. That point is dealt with in Amendment No. 88 to Schedule 8. We shall be discussing it later. That amendment provides for the benefit to be set out as in Section 32 (1) of the Housing

Act 1961 and meets the hon. Gentleman's point. I hope that he will welcome the change.

Mr. Peter Rees: Are we to understand that whether expenditure on lighting, heating or cleaning is normal or abnormal, whether repairs are structural or current and whether the furniture is that in which a normal house would rejoice or that in an embassy or in 10 Downing Street, relief applies to the whole of the expenditure? Are we to understand that whether expenditure is on abnormal domestic outlay or not, it is to be subject to tax?

Mr. Graham Page: On a point of order, Mr. Deputy Speaker. The Financial Secretary said that we should be coming to Amendment No. 88, but I understood that it was being dealt with in this group and the right hon. Gentleman has certainly not explained the amendment.

Mr. Sheldon: I meant to say that Amendment No. 88 would not come up for consideration until Schedule 8 comes before the House. It will not be dealt with immediately. I thought that what I said to the hon. Member for Cirencester and Tewkesbury made it clear that the concession to his arguments had been made. It will be found in Amendment No. 88 to Schedule 8.
We are dealing with matters that are normal for domestic occupation and not items that have nothing to do with such occupation. For example, a car in a garage is not an appurtenance normal for domestic occupation. A fixed amount of 10 per cent. has been provided in relation to normal appurtenances. The example that I gave would not be allowed because there are other purposes to which it could be put apart from accommodation.

Amendment negatived.

Amendments made: No. 41, in page 23, line 17, leave out '(other than structural repairs)'.

No. 46, in page 24, line 1, leave out 'or'.

No. 47, in page 24, line 2, after '(superannuation)', insert:
'or section 227(1) of that Act (retirement annuities)'.—[Mr. Robert Sheldon.]

Orders of the Day — Clause 34

OTHER AMENDMENTS RELATING TO BENEFITS OF EMPLOYMENT

Mr. David Howell: I beg to move Amendment No. 109, in page 24, line 24, leave out "£5,000" and insert "£6,500".

Mr. Deputy Speaker: With this we may take the following amendments:

No. 110, in page 24, line 43, leave out "£5,000" and insert "£6,500".

No. 111, in page 25, line 28, leave out "£5,000" and insert "£6,500".

No. 48, in page 24, leave out lines 35 to 37, and insert—
'(b) with a deduction for the amount treated as a deduction under sections 189, 192 or 194(3) of the Taxes Act for the immediately precedir4, year of assessment.'.

Mr. Howell: The amendment has the effect of raising the limit, defined as the higher-paid limit, from £5,000 to £6,500 a year. The Bill includes a proposal by the Government anyway to raise the figure to £7,500, but to do so next year, and we see no reason why it should not be raised to £6,500 this year to reflect the changes resulting from inflation since the figure was first set at £5,000 in 1974 and the changes in average earnings. We think that this is a realistic proposal.

Mr. Robert Sheldon: In opposing the amendment I point out that it would mean a major alteration, requiring the recoding of about 500,000 assessments, of the PAYE coding, which has been operating since April of this year. The hon. Member has used the arguments adduced in support of indexing in our previous debates, but it is not necessary, even if one agrees with the indexing argument—and I do not agree with all of it by any means—each year to index every item that changes in value. What we seek to do is to take account of various factors and to make adjustments from time to time. This adjustment takes place next year,

which we believe to be the right time. I oppose the amendment.

Mr. David Howell: The brevity and inadequacy of the Financial Secretary's reply were even greater than the brevity of my initial speech. As the right hon. Gentleman knows perfectly well, the original P11D limit on the definition of higher-paid employment was four times average earnings in 1948. By 1974 it had fallen to about two and a half times average earnings. If it were now raised to £6,500, it would not be even twice average earnings. If we go on like this, anybody with average earnings will be defined as being higher paid.
The right hon. Gentleman spoke about the recoding that would be required this year. Has he considered the other side of the question and thought about the millions of work people who, because their expenses are taken into account to decide whether they are higher paid, will have their incomes subjected to the scrutiny of the Inland Revenue to see whether those emoluments are taxable?
Last year hundreds of thousands of workers were threatened with being defined as higher paid, and the Financial Secretary's hon. Friends rushed into the Chamber to say that he should let them off and that their amendment had a result that was not what they desired. This year we are at the point where people on average earnings and with expenses and so on will find themselves defined as being higher paid.
This is madness. The amount should be changed this year as the Government are to change it next year, and I advise my hon. and right hon. Friends to press the amendment to make the change now and to make some sense of the situation.

Question put, That the amendment be made:—

The House divided: Ayes 230, Noes 261.

Division No. 210]
AYES
[11.39 p.m.


Adley, Robert
Berry, Hon Anthony
Brooke, Peter


Aitken, Jonathan
Biffen, John
Brotherton, Michael


Alison, Michael
Biggs-Davison, John
Bryan, Sir Paul


Arnold, Tom
Blaker, Peter
Buchanan-Smith, Alick


Atkins, Rt Hon H. (Spelthorne)
Body, Richard
Buck, Antony


Banks, Robert
Boscawen, Hon Robert
Bulmer, Esmond


Bell, Ronald
Bottomley, Peter
Butler, Adam (Bosworth)


Bennett, Sir Frederic (Torbay)
Bowden, A. (Brighton, Kemptown)
Carlisle, Mark


Bennett, Dr Reginald (Fareham)
Braine, Sir Bernard
Chalker, Mrs Lynda


Benyon, W.
Brocklebank-Fowler, C.
Channon, Paul




Churchill, W. S.
Howell, David (Guildford)
Raison, Timothy


Clark, Alan (Plymouth, Sutton)
Hunt, David (Wirral)
Rathbone, Tim


Clarke, Kenneth (Rushcliffe)
Hunt, John (Bromley)
Rawlinson, Rt Hon Sir Peter


Clegg, Walter
Hurd, Douglas
Rees, Peter (Dover &amp; Deal)


Cockcroft, John
Hutchison, Michael Clark
Reid, George


Cooke, Robert (Bristol W)
James, David
Renton, Tim (Mid-Sussex)


Cope, John
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Rhodes James, R.


Cormack, Patrick
Jessel, Toby
Rhys Williams, Sir Brandon


Corrie, John
Johnson Smith, G. (E Grinstead)
Ridley, Hon Nicholas


Costain, A. P.
Jones, Arthur (Daventry)
Ridsdale, Julian


Critchley, Julian
Jopling, Michael
Rifkind, Malcolm


Crouch, David
Joseph, Rt Hon Sir Keith
Roberts, Michael (Cardiff NW)


Dean, Paul (N Somerset)
Kaberry, Sir Donald
Roberts, Wyn (Conway)


Dodsworth, Geoffrey
Kellett-Bowman, Mrs Elaine
Ross, William (Londonderry)


Drayson, Burnaby
Kershaw, Anthony
Rossi, Hugh (Hornsey)


du Cann, Rt Hon Edward
Kimball, Marcus
Rost, Peter (SE Derbyshire)


Dunlop, John
King, Evelyn (South Dorset)
Sainsbury, Tim


Durant, Tony
Knight, Mrs Jill
St. John-Stevas, Norman


Dykes, Hugh
Knox, David
Shaw, Giles (Pudsey)


Eden, Rt Hon Sir John
Lamont, Norman
Shaw, Michael (Scarborough)


Edwards, Nicholas (Pembroke)
Latham, Michael (Melton)
Shelton, William (Streatham)


Elliott, Sir William
Lawson, Nigel
Shepherd, Colin


Emery, Peter
Le Marchant, Spencer
Shersby, Michael


Eyre, Reginald
Lester, Jim (Beeston)
Silvester, Fred


Fairbairn, Nicholas
Lloyd, Ian
Sims, Roger


Fairgrieve, Russell
Loveridge, John
Skeet, T. H. H.


Farr, John
Luce, Richard
Smith, Dudley (Warwick)


Fell, Anthony
McCrindle, Robert
Smith, Timothy John (Ashfield)


Finsberg, Geoffrey
Macfarlane, Nell
Speed, Keith


Fisher, Sir Nigel
MacGregor, John
Spence, John


Fletcher, Alex (Edinburgh N)
Macmillan, Rt Hon M. (Farnham)
Spicer, Jim (W Dorset)


Fletcher-Cooke, Charles
McNair-Wilson, M. (Newbury)
Spicer, Michael (S Worcester)


Fookes, Miss Janet
McNair-Wilson, P. (New Forest)
Sproat, Iain


Forman, Nigel
Madel, David
Stainton, Keith


Fowler, Norman (Sutton C'f'd)
Marshall, Michael (Arundel)
Stanbrook, Ivor


Fox, Marcus
Marten, Neil
Steen, Anthony (Wavertree)


Fry, Peter
Mates, Michael
Stewart, Rt Hon Donald


Gardiner, George (Reigate)
Mather, Carol
Stewart, Ian (Hitchin)


Gilmour, Rt Hon Ian (Chesham)
Maude, Angus
Stokes, John


Gilmour, Sir John (East Fife)
Mawby, Ray
Stradling Thomas, J.


Glyn, Dr Alan
Maxwell-Hyslop, Robin
Taylor, R. (Croydon NW)


Goodhart, Philip
Mayhew, Patrick
Taylor, Teddy (Cathcart)


Goodhew, Victor
Meyer, Sir Anthony
Tebbit, Norman


Goodlad, Alastair
Miller, Hal (Bromsgrove)
Temple-Morris, Peter


Gorst, John
Mills, Peter
Thatcher, Rt Hon Margaret


Gow, Ian (Eastbourne)
Miscampbell, Norman
Thomas, Rt Hon P. (Hendon S)


Gower, Sir Raymond (Barry)
Mitchell, David (Basingstoke)
Thompson, George


Grant, Anthony (Harrow C)
Moate, Roger
Townsend, Cyril D


Grieve, Percy
Monro, Hector
Trotter, Neville


Griffiths, Eldon
Moore, John (Croydon C)
van Straubenzee, W. R.


Grist, Ian
Morgan, Geraint
Vaughan, Dr Gerard


Grylls, Michael
Morgan-Giles, Rear-Admiral
Viggers, Peter


Hall-Davis, A. G. F.
Morris, Michael (Northampton S)
Wakeham, John


Hamilton, Michael (Salisbury)
Morrison, Charles (Devizes)
Walder, David (Clitheroe)


Hampson, Dr Keith
Mudd, David
Walker-Smith, Rt Hon Sir Derek


Hannam, John
Neave, Airey
Wall, Patrick


Harrison, Col Sir Harwood (Eye)
Nelson, Anthony
Warren, Kenneth


Harvie Anderson, Rt non Miss
Neubert, Michael
Weatherill, Bernard


Haselhurst, Alan
Newton, Tony
Wells, John


Hastings, Stephen
Normanton, Tom
Whitelaw, Rt Hon William


Havers, Rt Hon Sir Michael
Onslow, Cranley
Wiggin, Jerry


Henderson, Douglas
Osborn, John
Wilson, Gordon (Dundee E)


Hicks, Robert
Page, John (Harrow West)
Wood, Rt Hon Richard


Higgins, Terence L.
Page, Rt Hon R. Graham (Crosby)
Young, Sir G. (Ealing, Acton)


Hodgson, Robin
Page, Richard (Workington)



Holland, Philip
Pattie, Geoffrey
TELLERS FOR THE AYES:


Hordern, Peter
Price, David (Eastleigh)
Lord James Douglas-Hamilton and


Howe, Rt Hon Sir Geoffrey
Pym, Rt Hon Francis
Mr Peter Morrison




NOES


Abse, Leo
Benn, Rt Hon Anthony Wedgwood
Brown, Ronald (Hackney S)


Allaun, Frank
Bennett, Andrew (Stockport N)
Buchan, Norman


Anderson, Donald
Bidwell, Sydney
Callaghan, Jim (Middleton &amp; P)


Archer, Rt Hon Peter
Bishop, Rt Hon Edward
Campbell, Ian


Armstrong, Ernest
Blenkinsop, Arthur
Canavan, Dennis


Ashton Joe
Boardman, H.
Cant, R. B.


Atkins, Ronald (Preston N)
Booth, Rt Hon Albert
Carmichael, Neil


Atkinson, Norman
Boothroyd, Miss Betty
Carter-Jones, Lewis


Bagier, Gordon A. T.
Bottomley, Rt Hon Arthur
Cartwright, John


Barnett, Guy (Greenwich)
Boyden, James (Bish Auck)
Castle, Rt Hon Barbara


Barnett, Rt Hon Joel (Heywood)
Bradley, Tom
Clemitson, Ivor


Bates, Alf
Bray, Dr Jeremy
Cocks, Rt Hon Michael (Bristol S)


Bean, R. E.
Brown, Hugh D. (Provan)
Cohen, Stanley


Beith, A. J.
Brown, Robert C. (Newcastle W)
Coleman, Donald







Conlan, Bernard
Hughes, Roy (Newport)
Phipps, Dr Colin


Cook, Robin F. (Edin C)
Hunter, Adam
Prescott, John


Corbett, Robin
Jackson, Colin (Brighouse)
Price, C. (Lewisham W)


Cowans, Harry
Jackson, Miss Margaret (Lincoln)
Rees, Rt Hon Marlyn (Leeds S)


Cox, Thomas (Tooting)
Janner, Greville
Richardson, Mise Jo


Craigen, Jim (Maryhill)
Jeger, Mrs Lena
Roberts, Albert (Normanton)


Crawshaw, Richard
Jenkins, Hugh (Putney)
Roberts, Gwilym (Cannock)


Cronin, John
John, Brynmor
Robinson, Geoffrey


Crowther, Stan (Rotherham)
Johnson, James (Hull West)
Rodgers, George (Chorley)


Cryer, Bob
Johnson, Walter (Derby S)
Rodgers, Rt Hon William (Stockton)


Cunningham, G. (Islington S)
Jones, Barry (East Flint)
Rooker, J. W.


Cunningham, Dr J. (Whiteh)
Kaufman, Gerald
Roper, John


Davidson, Arthur
Kerr, Russell
Rose, Paul B.


Davies, Bryan (Enfield N)
Kilroy-Silk, Robert
Ross, Stephen (Isle of Wight)


Davies, Denzil (Llanelli)
Kinnock, Nell
Ross, Rt Hon W. (Kilmarnock)


Davies, Ifor (Gower)
Lamble, David
Ryman, John


Davis, Clinton (Hackney C)
Lamborn, Harry
Sedgemore, Brian


Deakins, Eric
Lamond, James
Selby, Harry


Dean, Joseph (Leeds West)
Latham, Arthur (Paddington)
Shaw, Arnold (Ilford South)


Dempsey, James
Leadbitter, Ted
Sheldon, Rt Hon Robert


Doig, Peter
Lestor, Miss Joan (Eton &amp; Slough)
Shore, Rt Hon Peter


Dormand, J. D.
Lewis, Ron (Carlisle)
Silkin, Rt Hon John (Deptford)


Douglas-Mann, Bruce
Lomas, Kenneth
Silverman, Julius


Duffy, A. E. P.
Loyden, Eddie
Skinner, Dennis


Dunnett, Jack
Luard, Evan
Small, William


Dunwoody, Mrs Gwyneth
Lyon, Alexander (York)
Smith, Cyril (Rochdale)


Eadie, Alex
Lyons, Edward (Bradford W)
Smith, John (N Lanarkshire)


Edge, Geoff
Mabon, Rt Hon Dr J. Dickson
Snape, Peter


Ellis, John (Brigg &amp; Scun)
McCartney, Hugh
Spearing, Nigel


Ellis, Tom (Wrexham)
McDonald, Dr Oonagh
Spriggs, Leslie


English, Michael
McElhone, Frank
Stallard, A. W.


Ennals, David
MacFarquhar, Roderick
Steel, Rt Hon David


Evans, Fred (Caerphilly)
McGuire, Michael (Ince)
Stewart, Rt Hon M. (Fulham)


Evans, Gwynfor (Carmarthen)
MacKenzie, Rt Hon Gregor
Stott, Roger


Evans, Ioan (Aberdare)
Maclennan, Robert
Strang, Gavin


Evans, John (Newton)
McMillan, Tom (Glasgow C)
Summerskill, Hon Dr Shirley


Ewing, Harry (Stirling)
McNamara, Kevin
Taylor, Mrs Ann (Bolton W)


Faulds, Andrew
Madden, Max
Thomas, Dafydd (Merioneth)


Fitch, Alan (Wigan)
Magee, Bryan
Thomas, Ron (Bristol NW)


Flannery, Martin
Maguire, Frank (Fermanagh)
Thorne, Stan (Preston South)


Fletcher, Ted (Darlington)
Mahon, Simon
Tierney, Sydney


Foot, Rt Hon Michael
Mallalieu, J. P. W.
Tinn, James


Ford, Ben
Marks, Kenneth
Tomlinson, John


Forrester, John
Marshall, Dr Edmund (Goole)
Torney, Tom


Fowler, Gerald (The Wrekin)
Marshall, Jim (Leicester S)
Urwin, T. W.


Fraser, John (Lambeth, N'w'd)
Maynard, Miss Joan
Varley, Rt Hon Eric G.


Freeson, Reginald
Meacher, Michael
Wainwright, Edwin (Dearne V)


Garrett, John (Norwich S)
Mikardo, Ian
Walker, Harold (Doncaster)


Garrett, W. E. (Wallsend)
Millan, Rt Hon Bruce
Walker, Terry (Kingswood)


George, Bruce
Miller, Dr M. S. (E Kilbride)
Ward, Michael


Gilbert, Dr John
Mitchell, Austin Vernon (Grimsby)
Watkins, David


Golding, John
Mitchell, R. C. (Soton, Itchen)
Watkinson, John


Gould, Bryan
Molloy, William
Weetch, Ken


Gourlay, Harry
Moonman, Eric
Wellbeloved, James


Grant, George (Morpeth)
Morris, Alfred (Wythenshawe)
While, Frank R. (Bury)


Grant, John (Islington C)
Morris, Charles R. (Openshaw)
While, James (Pollok)


Grocott, Bruce
Morris, Rt Hon J. (Aberavon)
Whitehead, Phillip


Hamilton, James (Bothwell)
Moyle, Roland
Whitlock, William


Hardy, Peter
Mulley, Rt Hon Frederick
Willey, Rt Hon Frederick


Harper, Joseph
Newens, Stanley
Williams, Rt Hon Alan (Swansea W)


Harrison, Rt Hon Walter
Noble, Mike
Williams, Alan Lee (Hornch'ch)


Hart, Rt Hon Judith
Oakes, Gordon
Williams, Sir Thomas (Warrington)


Hattersley, Rt Hon Roy
Ogden, Eric
Wilson, Alexander (Hamilton)


Hatton, Frank
O'Halloran, Michael
Wilson, Rt Hon Sir Harold (Huyton)


Hayman, Mrs Helene
Orbach, Maurice
Wilson, William (Coventry SE)


Healey, Rt Hon Denis
Orme, Rt Hon Stanley
Wise, Mrs Audrey


Heffer, Eric S.
Ovenden, John
Woodall, Alec


Hooley, Frank
Palmer, Arthur
Woof, Robert


Hooson, Emlyn
Pardoe, John
Wrigglesworth, Ian


Horam, John
Park, George
Young, David (Bolton E)


Howell, Rt Hon Denis (B'ham, Sm H)
Parry, Robert



Hoyle, Doug (Nelson)
Pendry, Tom
TELLERS FOR THE NOES:


Huckfield, Les
Penhaligon, David
Mr David Stoddart and


Hughes, Rt Hon C. (Anglesey)
Perry, Ernest
Mr Ted Graham


Hughes, Robert (Aberdeen N)

Question accordingly negatived.

Amendment made: No. 49, in page25, line 23, after 'in', insert 'Part I of'. —[Mr. Joel Barnett.]

Orders of the Day — Schedule 8

EMPLOYEES' BENEFITS: CONSEQUENTIAL AMENDMENTS

Amendments made: No. 88, in page 73, line 5, leave out from `employment' to end of line 7 and insert—

'(a) alterations and additions to the premises concerned which are of a structural nature, and
(b) repairs to the premises of a kind which, if the premises were let under a lease to which section 32 of the Housing Act 1961 (repairing obligations) applies, would be the obligation of the lessor under the covenants implied by subsection (1) of that section,

are not benefits to which section 61 applies.'.

No. 89, in page 73, line 9, at end insert—

Orders of the Day — PART II

AMENDMENT OF FINANCE ACT 1974 (c. 30) SCHEDULE I PART II

8.—(1) Paragraph 5 of the Schedule shall be amended as follows.

(2) In sub-paragraph (1) and sub-paragraph (2) (a), after "paragraph 4(1)(a)" there shall be inserted "or paragraph 4A(1)".

(3) In sub-paragraph (3), after paragraph (c) there shall be inserted "or if that other person falls within paragraphs (b) and (c) above and is by virtue of paragraph 4A above en- titled to claim relief under section 75 of the Finance Act 1972 in respect of that part of the interest".

9. In paragraph 7 of the Schedule, after "where" there shall be inserted "it is eligible only because".

10. For paragraph 8 of the Schedule, there shall be substituted the following—
8.— (1) Where any interest paid by persons as the personal representatives of a deceased person or as trustees of a settlement made by his will would, on the assumptions required by this paragraph, be eligible for relief under section 75 of the Finance Act 1972 by virtue of Part I of Schedule 9 to that Act and, in a case where sub-paragraph (3) below applies, one of the conditions in sub-paragraph (4) below is satisfied, that interest shall be so eligible notwithstanding the preceding provisions of his Part of the Schedule.
 (2) For the purposes of sub-pargraph (1) above it shall be assumed that the de- ceased would have survived and been the borrower.

(3) If, at his death—

(a) the land caravan or house boat concerned was used as his only or main residence, or
(b) it was used by him as a residence or was intended to be used in due course as his only or main residence and. in

either case, he resided in job-related living accommodation,

it shall be assumed for the purposes of subparagraph (1) above that that would have continued to be the case.

(4) The conditions referred to in sub-paragraph (1) above are—

(a) that, at the time the interest is paid, the land, caravan or house boat concerned is used as the only or main residence of the deceased's widow or widower or of any dependent relative of the deceased;
(b) that, at that time, it is used by the deceased's widow or widower as a residence or is intended to be used in due course as his or her only or main residence and, in either case, he or she resides in job-related living accommodation.

(5) In this paragraph 'personal representatives' has the meaning assigned to it by section 432 of the Taxes Act; and sub-paragraphs (3) to (6) of paragraph 4A above apply in relation to this paragraph as they do to that." '.—[Mr. Joel Barnett.]

Orders of the Day — Clause 35

CAPITAL GAINS: COMPANY RECONSTRUCTIONS AND AMALGAMATIONS INVOLVING EXCHANGE OF SHARES ETC.

Amendment made: No. 50, in page 26, line 15, leave out 'income tax'.[Mr. Joel Barnett.]

Mr. Peter Rees: I beg to move Amendment No. 51, in page 26, line 15, at end insert
'but for the purposes of this section avoidance of liability shall not be deemed to include the deferral of liability'.
The amendment relates to Clause 35 which is designed initially at any rate to enlarge the relief for company reconstructions. But if one reads a little more closely one sees that it also narrows it. In characteristic fashion the Government have decided that if one is to take advantage of the relief, which was initially introduced by the Labour Government of 1964 in the Finance Bill of 1965 one has to demonstrate that the avoidance of tax was not one's main or sole purpose.
I have always felt a slight difficulty about that in that it is very rare to find a reconstruction which is within the relieving provisions of Schedule 7 of the Finance Act 1965 which does not have, at any rate in the minds of those who engineer it, the possibility that capital gains tax will if not be avoided at least be deferred.
Perhaps in an unguarded reply, the Chief Secretary in our debates upstairs seemed to suggest that the deferral of tax could also be regarded as the avoidance. If that is so, it will, I suspect, follow that the relief provisions of the Schedule 7 will be entirely valueless.
Cases have already been drawn to my attention which I would have regarded as perfectly necessary reconstructions, admittedly hoping to take advantage of those relieving provisions and hoping to defer capital gains tax. There is therefore considerable concern in financial circles which, I should emphasise to the Minister of State, is not allayed by the bland statement that the Inland Revenue will deal sympathetically and expeditiously with all applications.
The clause as drawn makes it virtually impossible for any company reconstruction to slip through the net. For that reason I and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) have put down Amendment No. 51 which states:
'but for the purposes of this section avoidance of liability shall not be deemed to include the deferral of liability'.
I believe that it is a reasonable, sensible and self-evident amendment. I hope that it will commend itself to the House.

Mr. Denzil Davies: The amendment seeks to ensure that Clause 35 does not apply where the scheme involves a deferral of the payment of tax. The hon. and learned Member for Dover and Deal (Mr. Rees) will appreciate that the clause is aimed in the main at that kind of situation. I am sure that the hon. and learned Gentleman is well aware of the ways in which tax can be deferred by artificial schemes. In fact, in most cases the deferral becomes effectively a permanent non-payment of tax.

Mr. Peter Rees: rose—

Mr. Davies: I shall not give way at the moment. The difficulty is that the most common form of avoidance, in a case of this kind, where there is a real disposal of shares for cash, is dressed up as a share exchange. The capital gain is rolled over indefinitely, but the cash goes into a money-box company controlled by the avoider. He inserts this company between his own company and the shares that he wants to sell. He has

no need to sell the share of this intermediary because he can enjoy the benefit of the cash in other ways—for example, by loans from the money-box company. The result is that deferral effectively becomes a permanent exemption. The clause is aimed at the avoidance of capital gains tax by artificially creating a company which ends up as a money-box company merely holding cash, and then the cash can be extracted, very often by way of loan, from that company.
12 midnight.
The clause contains provisions for seeking a clearance. But if clearance is refused, we have inserted into the clause a provision for a kind of appeal to the Special Commissioners. That safeguards genuine transactions. If the hon. and learned Gentleman's amendment were accepted, one of the main reasons for the clause would be lost, because it is at that kind of transaction at which the clause is aimed.

Mr. Peter Rees: Surely the hon. Gentleman will appreciate, although perhaps he has not made it clear, that the original scheme of relief, which was devised by the present Prime Minister, then Chancellor of the Exchequer, in the Finance Bill 1965, was designed to defer tax, so he can hardly complain that someone takes advantage of that provision to defer capital gains tax. He goes on to amplify that position by saying that the deferral may be permanent. But surely the right way to tackle that is to ensure that the deferral does not become permanent or to ensure that loans are caught by some other provision, and not to render the whole basis of relief nugatory. It is idle to say that there is a clearance procedure. If the Special Commissioners are bound to operate the provisions of this clause, it will make it virtually impossible for anyone to take advantage of the provisions of Schedule 7 of the Bill.

Mr. Davies: The kind of transaction aimed at is clear. It is not aimed at the share exchange transaction. It is aimed at the case where a person wishes to sell his shares for cash, decides not to sell the shares for cash but instead to go through this artificial transaction where at the end of the day the cash ends up in a company specially designed for that purpose, and then the cash is transferred to the individual. Instead of his actually


selling the shares for cash, he gets the cash out of the money-box company by means of a loan. The intention all along is to get cash and not to carry out the ordinary kind of merger share exchange to which the original schedule was directed.

Amendment negatived.

Orders of the Day — Clause 38

CAPITAL GAINS: VALUE-SHIFTING

Mr. Graham Page: I beg to move Amendment No. 56, in page 31, line 24, leave out 'materially reduced' and insert:
'reduced by more than 30 per cent.'.
This amendment is designed to counter specific capital gains tax avoidance schemes, but it goes very wide in doing that. I imagine that the clause was devised to counteract the case of Floor v. Davis. It was an extraordinary case which finished up with the shares in a company called Donmarco in the Cayman Islands.
But the clause goes very much further than that and is couched in broad terms so that it might effectively operate as a general counter to a very wide variety of capital gains.
Any disposal after 29th March 1977 is caught if, as a result of any arrangement made, the value of the asset disposed of has been materially reduced and a tax benefit has been received by someone else. It is those words "materially reduced" which I seek to alter in the amendment. There is a tendency in taxation legislation to use nebulous words such as "material", and only last year the taxpayer was put in an impossible position by the use of the similarly nebulous word "insubstantial". On that occasion the Financial Secretary informed the Committee that the use of a car for one or two journeys a year would be regarded as insubstantial. He then said:
This is a straightforward amendment that seeks to point out that in legislaton terms such as 'insubstantal' should where possible be quantified. If the figure were to be put as high as some of these amendments suggest, perhaps 5 or 10 per cent., it would be wholly disadvantageous to the taxpayer."—Official Report, Standing Committee E; 22nd June 1976, c. 1070.]

Therefore, from June 1976 one thought that 'insubstantial' could not mean as much as 10 per cent. or even as much as 5 per cent., judging by what the Financial Secretary had said. But then, on 11th November 1976, the Inland Revenue Press release on this matter said:
The word 'insubstantial' is not defined. The Inland Revenue wishes it to be known that the business use of a car will not be regarded as insubstantial for the purposes of Section 62(1) if that use exceeds 10 per cent. of its total use to the tax year.
According to the Inland Revenue in its release, four or five months after Financial Secretary's statement that 5 or 10 per cent. would be disadvantageous, the word "insubstantial" related to as much as 10 per cent. of total use.
If we are to use phrases such as "materially reduced", or similar terms in the present Bill, is the taxpayer to be put in an impossible position again? Surely Ministers and the Inland Revenue should agree what they mean when they use such nebulous words. My amendment seeks to qualify the phrase "materially reduced" by altering it to
reduced to more than 30 per cent.

Mr. Denzil Davies: This amendment relates to Clause 38. The case of Floor v. Davis was countered by Clause 35. Clause 38 is aimed at a different kind of transaction. In the case of Clause 35 many transactions would be commercial transactions. In Clause 38 we are concerned with a wholly artificial transaction designed for no other purpose except to avoid tax.
I am told by the Inland Revenue that 185 cases have come to light which would be covered by Clause 38 and that the tax loss amounts to £23 million. Furthermore, there are many other cases which have not yet come to light. Therefore, in dealing with Clause 38 we are looking at tax avoidance schemes entered into for no other reason than tax avoidance. We must bear that factor very much in mind.
The right hon. Gentleman asked why we did not define "material" or change it to meet his understanding of the word. I am told that if the amendment were accepted it would provide the avoider with a clearly defined escape route. Since the avoidance schemes at which the clause is aimed are usually wholly artificial, with no cash changing hands, apart from the payment of commissions, it would simply


be a matter of choosing the desired figures in terms of capital loan without exceeding the 30 per cent. tolerance which the right hon. Gentleman wishes to include in the provision. The figures could be as large as necessary, as they involve little or no real expenditure.
"Materially" is a matter to be determined according to the facts of the particular case. The clause is aimed at artificial tax avoidance devices. If the tax avoider does not like the Inland Revenue's interpretation of "materially", he can appeal to the Special Commissioners, and from them to the House of Lords. The word can be determined by the courts in the normal way, taking account of the facts of the particular scheme.
For those reasons, I cannot commend the amendment to the House.

Amendment negatived.

Mr. Graham Page: I beg to move Amendment No. 57, in page 31, line 42, at end insert—
'(4) This section shall not apply where the value of shares in one member of a group of companies has been reduced and the shares of another member of that group of companies has been increased by virtue of a transaction falling within section 273(1) of the Taxes Act (disposals within a group of companies).'.

Mr. Deputy Speaker: With this we may take Government Amendment No. 59.

Mr. Page: The clause is a very wide-ranging provision to catch the artificial schemes that the Minister has mentioned. Where a disposal is caught under these provisions, the inspector can make adjustments under subsection (4), but then we come to subsection (5), to which the amendment relates, and there again the transaction must be considered.
As it stands, if one member of a group of companies disposes of an asset to another and 10 or 20 years later the shares in the first company are sold, the Inland Revenue can pick up any under-value placed on the asset, transferred and add it to the sale proceeds of the shares in the transferor company. Section 273 of the Taxes Act specifically allows intra-group transfers to take place without having to worry about the establishing of market values, on the basis that any under- or over-value will be picked up ultimately on the disposal of the asset. It is difficult to see why Clause 38 should

be drawn so widely as to negate that practical approach to transactions within a group. It may well be that the matter is remedied by paragraph (b) of Government Amendment No. 59. I hope that it is, and I await with great expectations the explanation of the Government amendment.

Mr. Denzil Davies: The right hon Member for Crosby (Mr. Page) is right, as he often is. The point in his amendment is met by the Government amendment. The right hon. Gentleman rightly said that there was no reason why the clause should apply to transfers within groups in particular. I am told that Government Amendment No. 59 is considerably more generous than the right hon. Gentleman's amendment. I am sure that on that basis he will be delighted to withdraw Amendment No. 57. Our amendment goes slightly further, because it protects all transfers of assets within groups of companies.

Mr. Graham Page: On that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

12.15 a.m.

Mr. Graham Page: I beg to move Amendment No. 58, in page 32, line 15, leave out from 'by' to end of line 19 and insert
'the amount by which the consideration for the disposal of the asset mentioned in paragraph (a) above had been increased by virtue of subsection (4) above'.
This, again, is an amendment to Clause 38. In those cases where there has been a reduction in the value of one asset and a corresponding increase in the value of another, I am not sure why both these amounts—the reduction and the increase —should need to be looked at separately by the Commissioners.
The way I read the clause one amount is to be determined under subsection (4) on the disposal of the first asset. It seems both fair and sensible to use that amount on the disposal of the second asset, rather than ask the Commissioners to reconsider the matter and perhaps arrive at a different conclusion.
This puts the taxpayers in considerable difficulty and doubt, and gives the Commissioners the bother of making a second valuation. The amendment intends to


avoid that, by seeing that the first valuation is used on the disposal of the second asset.

Mr. Denzil Davies: At first sight, the right hon. Member's amendment seems to be reasonable enough. It could be argued that an automatic reduction of the consideration received on the disposal of the second asset is equal to the increase made in the consideration of the disposal of the first asset. That seems to be a reasonable way of dealing with the matter.
However, I am told that the amendment could pave the way for more avoidance in this situation. It does not follow that the amount by which the value of the first asset is reduced is exactly matched by the amount of the increase in the value of the second asset. For example, part of the value inherent in a controlling holding of shares may not reappear if it is broken up into smaller holdings. It would be difficult to match one asset with another because the valuation could change if the holding were split up.
Nor need there necessarily be an exact equilibrium between tax bills on the two disposals, and it is not difficult to see how this amendment could be used to avoid tax liability. For this reason subsection (5) provides for a just and reasonable reduction of the consideration, taking account of the scheme or arrangements and the increase made to the consideration of the first asset.
The words "just and reasonable" appear in relation to Section 280 of the Income and Corporation Taxes Acts, and of course this could be adjudicated upon again in the courts if the taxpayer did not agree with the Inland Revenue's interpretation. That is why "just and reasonable" has been used rather than the matching of the two sums, which at first sight appears to be the best way of dealing with this. We have considered the matter and we believe that our way is better.

Mr. Graham Page: I am sorry that the Minister should throw us back on a decision by the courts, with all the expensive litigation that this would entail for the taxpayer. However, in the light of his explantation,

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 59, in page 32, line 27, at end insert—
'(6A) In relation to the disposal by a company of an asset consisting of shares in another company the reference in subsection (l)(a) above to a reduction in the value of the asset does not include a reference to any reduction attributable to—

(a) the payment of a dividend by the second company at a time when it and the first company are members of the same group of companies within the meaning of section 272 of the Taxes Act; or
(b) the disposal of any asset by the second company at such a time, being a disposal falling within section 273 (1) of that Act." —[Mr. Denzil Davies.]

Mr. Denzil Davies: I beg to move Amendment No. 60, in page 32, line 32, leave out
'mentioned in subsection (1) above is' and insert 'and reduction in value mentioned in subsection (1) above (or, in a case within subsection (7) above, the disposal and reduction or increase in value) are:

Mr. Speaker: With this we may take Amendment No. 61, in page 32, line 33 at end insert
'but shall not apply where an arrangement for or affecting the disposal had been made before 29th March 1977 and there is evidence in writing of such an arrangement'.

Mr. Davies: This amendment confines the operation of Clause 38 to cases where the reduction in value, as well as the disposal, occurs after Budget day.
Opposition Amendment No. 360 moved in Committee had this precise purpose, but for drafting reasons it could not be accepted. The Government amendment meets an undertaking given in Committee to meet the Opposition's point and confines the clause to reductions in value, as well as the disposal, that occur after Budget day.

Mr. Graham Page: I should like to refer to Amendment No. 61. I understand that Clause 38 comes into operation where an arrangement has been made before a disposal as well as where there is an actual disposal. The exclusion for pre-27th March 1977 disposals should therefore also include pre-29th March 1977 arrangements.
That was the purpose of the amendment. It seems unfair that one should


be included and the other excluded. 1 hoped that my Amendment No. 61 was in some way included in Amendment No. 60, but, from what the Minister said, I do not think that it is. I hope, therefore, that he will accept Amendment No. 61.

Mr. Denzil Davies: As I understand Amendment No. 61, the right hon. Member for Crosby (Mr. Page) seeks to exclude cases where there is written evidence of an arrangement before Budget day "for or affecting" the disposal of an asset.
I do not follow why he wishes to cover the kind of case where there is merely a written arrangement and no disposal. I can see great difficulties in determining what transactions are intended to be covered by the phrase "affecting the disposal". I understand that there was a House of Lords case—Greenberg v. Commissioners of Inland Revenue—where great difficulty was found in interpreting the phrase. The introduction of the concept of an arrangement "affecting" a disposal would greatly add to the uncertainty of legislation. The clause is aimed at highly artificial schemes for the avoidance of tax. I do not see why we should allow an escape because an arrangement was planned before Budget day but where there was no actual disposal.

Mr. Graham Page: The Minister said "planned before Budget day". That was why I went rather further in the amendment and said
evidence in writing of such an arrangement".
If there were evidence in writing, it would be specific as to what the arrangement was. In that way I have tried to exclude the doubt that might arise from referring only to an arrangement.

Mr. Davies: Evidence in writing can be fairly wide. It could be a letter on a file. It could be minute evidence. I suggest that that kind of imprecision is not the best way of dealing with cases of tax avoidance. I do not see why we should go any further and allow mere evidence of that kind in writing to exclude liability. I cannot recommend the House to accept Amendment No. 61, but I hope that the House will accept Amendment No. 60.

Amendment agreed to.

Orders of the Day — Clause 40

CONVERSION ETC. OF SECURITIES HELD AS CIRCULATING CAPITAL

Amendment made: No. 62, in page 35, line 5, at end insert:—
'(7) In determining for the purposes of subsection (2)(a) above whether a transaction would result in the original holding being equated with a new holding by virtue of paragraph 6 or 7 of Schedule 7 to the said Act of 1965 the reference in section 35(2) above to capital gains tax shall be construed as a reference to income tax'.—[Mr. Denzil Davies.]

Orders of the Day — Clause 42

ANNUAL PAYMENTS FOR NON-TAXABLE CONSIDERATION

Mr. Denzil Davies: I beg to move Amendment No. 101, in page 35, line 33, leave out from 'to' to end of line 40 and insert—

'(a) any payment which in the hands of the recipient is income falling within section 457(1)(a) or (c) or (2) of the Taxes Act (partnership agreements, transfers of businesses and maintenance agreements);
(b) any payment made to an individual under a liability incurred in consideration of his surrendering, assigning or releasing an interest in settled property to or in favour of a person having a subsequent interest;
(c) any annuity granted in the ordinary course of a business of granting annuities; or
(d) any annuity charged on an interest in settled property and granted at any time before 30th March 1977 by an individual to a company whose business at that time consisted wholly or mainly in the acquisition of interests in settled property or which was at that time carrying on life assurance business in the United Kingdom.'

Mr. Speaker: With this we are to take the following amendments:

No. 63, in page 35, line 37, after 'individual', insert
'or recognised insurance or annuity company or society'.

No. 64, in page 35, line 38, leave out
to the person next entitled'.

Mr. Denzil Davies: This amendment redrafts subsection (3) of the clause and embodies further exceptions to the clause that in Committee I undertook to consider.
The amendment deals with a number of amendments tabled by the hon. and learned Member for Dover and Deal (Mr.


Rees)—namely, Amendments Nos. 355 and 396. Paragraph (b) of the amendment should meet the substance of the points made in Committee by the hon. and learned Gentleman, at least on this part of the clause.

Mr. John Farr: I am grateful to the Minister. From my reading of Amendment No. 101 he appears to have covered the provision that I sought to make in Amendment No. 64. It also appears that Amendment No. 101 meets all he points made in Committee on 21st June. I am grateful to my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), who dealt with these issues in Committee. It appears that paragraph (d) of Amendment No. 101 and especially its last three lines meet the provision in my Amendment No. 63.

Mr. Peter Rees: I also rise to express my appreciation that the Minister has met most of the points made in Committee. With your permission, Mr. Speaker, I should like to refer to two amendments. The first is Amendment No. 65, in page 36, line 2, to leave out from '1977' to the end of line 4 and to insert:
'or to any payment made after that date under a liability incurred for consideration in money or money's worth before that date'.
The second Amendment is No. 66, in page 36, line 2, leave out from '1977' to the end of line 4. If I am permitted to speak to them now I hope that I shall be able to move them formally later.

Mr. Speaker: That is music to my ears.

Mr. Rees: I want to speak to these amendments because the Minister has been so forthcoming. I shall not say "unsually forthcoming" because he usually tries to meet points put to him. I am glad to see that the Chief Secretary nods his head.
Amendment No. 101 was put down on the Order Paper at a late stage. I have not been able to consult a wide range of interests but it meets many points raised earlier. I am therefore sorry that the Minister did not go the whole way and accept Amendments Nos. 65 and 66.
As I pointed out in Committee, there were to my knowledge a range—but not a wide range—of transactions entered into long before we began to consider the Finance Bill. Where a person has

entered into an arrangement in good faith on the basis of the law then in force, it has not been thought right to prejudice him by a change in the law. But such people will now be caught by Clause 42.
The Minister of State will say that there is no real retrospection because no taxpayer can guarantee that the law will remain as it is indefinitely. But up to now Governments have recognised that it is undesirable to affect the fiscal consequences of transactions entered into before a Finance Bill is passed. An instance is the alteration of tax relief for deeds of covenant. Annual payments made under such deeds were deprived of relief but not if made under deeds effected before the Finance Act in question. Relief on interest payments was phased out by varying degrees under the Finance Bills of 1965 and of the summer of 1974.
I hope, therefore, that the Minister of State, who has been so forthcoming about individual cases put to him by my hon. Friends and myself, will feel able to go the whole distance and recognise that there is an important principle at stake. Where a person has ordered his affairs on the basis of the law as it stands, his arrangements should be left as they are for a reasonable period so that he can if need be alter those arrangements with the approval of the other party to the transaction. I hope that the Minister of State will go further than he has gone.

12.30 a.m.

Mr. Denzil Davies: Perhaps I may speak briefly to Amendment No. 65 as the hon. and learned Member for Dover and Deal (Mr. Rees) has raised the point. I think that his fears arc misplaced to a considerable extent. Subsection (3) of Clause 42 does not apply where the annuities are granted in the ordinary course of the business of granting annuities. That subsection is being amended by Amendment No. 101. We are advised that cases of the tax avoidance which led to this clause are not carried out by companies and firms that carry on the normal business of granting annuities, and that the let-out in subsection (3), as amended, would cover the kind of case that the hon. and learned Gentleman has in mind, because we are concerned here merely with artificial transactions which, as I have said, are


not carried out by companies or firms carrying on the ordinary business of granting annuities.

Mr. Peter Rees: I see that the Minister is trying to grasp the point, but I am afraid that even Amendment No. 101 will not cover the case I have in mind. I did not have in mind transactions necessarily entered into by companies whose business it is to grant annuities. In the course of professional practice, I have come across a person who has purchased a house not in consideration of a lump sum but by a covenanted series of annual payments. This was done many years ago. For all I know, the annuity in that case may have run out. If I have encountered one such case, there, must be many more.
In those days, it was regarded as an acceptable form of transaction. It would not be covered by paragraph (c) of Amendment No. 101, as it was not trans. acted in the ordinary course of business but through, for example, a person's occupation. I hope that the Minister will accept that such a thing should be allowed, not, of course, for future such transactions but certainly where these transactions have peen entered into in the past.
I know that Treasury Ministers are prone to find technical defects in amendments moved by Back Benchers, and if the Minister of State is fortunate enough still to be in his post by the next Finance Bill, I hope that he will be able to meet my point, which I have put with moderation and restraint.

Amendment agreed to.

Amendments made: No. 116, in page 35, line 41 leave out "reference" and insert "references".

No. 117, in page 35, line 43, leave out "a reference" and insert "references". —[Mr. Denzil Davies.]

Mr. Speaker: Does the hon. and learned Member for Dover and Deal (Mr. Rees) wish to divide the House on Amendment No. 65?

Mr. Peter Rees: If you will permit me to move it formally, Mr. Speaker, if only to give the Minister of State an opportunity to reply to my last point—

Mr. Speaker: Order. The Minister of State cannot do so now. He has lost his

chance. Amendment No. 65 was discussed earlier at the request of the hon. and learned Member for Dover and Deal. It must be put formally now.

Amendment proposed: No. 65, in page 36, line 2, leave out from "1977" to end of line 4 and insert
'or to any payment made after that date under a liability incurred for consideration in money or money's worth before that date'.—[Mr. Peter Rees.]

Question put and negatived.

Orders of the Day — Clause 43

PERSONS DOMICILED IN CHANNEL ISLANDS OR ISLE OF MAN

Mr. Speaker: With permission, I shall put formally Amendments Nos. 67, 68 and 69.

Mr. Peter Rees: On a point of order, Mr. Speaker. Amendment No. 68 stands in my name and I have not so far indicated that I wish to move it formally, although I hope that I can do so.

Mr. Speaker: The hon. and learned Gentleman may speak to it but not yet move it, because we must first deal with Amendment No. 67.

Amendment proposed: No. 67, in page 36, line 17, leave out 'subsections (3) and (4) below' and insert
'the following provisions of this section'.— [Mr. Denzil Davies.]

Mr. Kenneth Lomas: On a point of order, Mr. Speaker. If I may say so, the hon. and learned Member for Dover and Deal (Mr. Rees) has played silly devils with the House tonight. If he is not prepared to put—

Mr. Speaker: Order. Lots of things happen in this place. I remind the House that we are taking at the same time Amendment No. 68, in Clause 43, page 36, line 32, leave out from beginning to 'paragraph' in line 34 and Government Amendment No. 69.

Mr. Peter Rees: I am grateful for your protection, Mr. Speaker.
Perhaps I can refer briefly to Amendment No. 68 relating to Clause 43 which is designed to amend the provisions of the 1975 Act concerning domicile. The amendment relates to subsection (3),


which deprives of relief the emoluments of a person domiciled in the Channel Islands, but who had a domicile somewhere else intermediately, if the emoluments derive
from an office or employment under or with a person with whom he is connected".
I suppose I can understand the reasons that have led the Government to put that provision into subsection (3), but I find it a little unattractive. A person is precluded from obtaining relief if he has spent a blameless life in the Channel Islands in the office of an uncle, father-in-law, or brother, but if he happened to be employed by a public company he would obtain relief in respect of his emoluments.
I think that the Government are a little prone to find avoidance where none will exist in practice. The Minister of State has taken a liberal approach to these matters. He has endeavoured to meet legitimate points put to him, and I hope he will realise that if subsection (3) is left unamended considerable hardship and injustice could be done to those who are in no real substantial sense distinct from those who hold employment with a public company. I hope that on that basis the amendment will find favour with the House and with the Minister of State.

Mr. Denzil Davies: Amendment No. 68 follows from the clause and Government Amendment No. 67. Government Amendments Nos. 67 and 69 go some way to meet a point raised in Committee by the hon. Member for Eastbourne (Mr. Gow), who sought to relax the connected persons rule in relation to property derived from emoluments earned in the Channel Islands.
The hon. and learned Member for Dover and Deal (Mr. Rees) is seeking to extend the exemption in respect of employment with a non-qualifying business. I cannot accept the amendment, because it seeks the removal of the connected persons rule where the employment is in a non-qualifying "investment" business. As the profits of such a business would not qualify for the relief provided by Clause 43, it would be a simple matter to avoid this restriction if the profits could be converted into assets qualifying for relief by being paid out in the form of emoluments to the owner's relatives,

or to the owner himself. There would be substantial scope for abuse.
Although I cannot accept Amendment No. 68 I am prepared, without commitment, to look at the point made by the hon. and learned Gentleman to see whether, as a result of not giving this relief, there will be some hardship. We shall look at this during the year, but I am not giving a commitment to accept the point. I hope that the House will accept Government Amendment No. 67.

Amendment agreed to.

Amendments made: No. 69, in page 36, line 33 leave out from 'employment' to 'business ' in line 36 and insert
'in a business of the kind mentioned in subsection (3A) below which is carried on by a person with whom he is connected; and paragraph (b)(ii) of subsection (2) above does not apply to profits from the carrying on of a business of the kind mentioned in subsection (3A) below.
(3A) The business referred to above is any'.

No. 72, in page 37, line 16, leave out from 'and' to end of line 20 and insert
'paragraph 13(7) of Schedule 4 to the said Act of 1975 (control of company) applies for the purposes of subsection (2) above'.—[Mr. Denzil Davies.]

Orders of the Day — Clause 44

RELIEF FOR WOODLANDS

Mr. Peter Rees: I beg to move Amendment No. 126, in page 37, line 28, at end insert—
'and for paragraph 3 of the said Schedule 9 to the Finance Act 1975 (basis and rate of tax chargeable on disposal of trees and underwood) the following paragraph shall be substituted:—
3.—(1) Where the value of any trees or underwood has been left out of account in determining the value transferred on the death of any person and tax is chargeable under paragraph 2 above on a disposal of the trees or underwood, it shall be charged on the following amount (hereinafter called 'the taxable amount'), namely—

(a) if the disposal is a sale for full consideration in money or money's worth, on the net proceeds of the sale; and
(b) in any other case, on the net value at the time of the disposal, of the trees or underwood.

(2) The amount of tax chargeable shall be ascertained by multiplying the taxable amount by the relevant factor provided that in no case shall the tax be charged at a rate or rates greater than the rate or rates


at which tax would have been chargeable on the death if the taxable amount, and any other amount on which tax was previously chargeable under paragraph 2 above in relation to the death, had been included in the value transferred on death and the taxable amount on which the tax is chargeable had formed the highest part of that value.
(3) The relevant factor shall be ascertained by dividing the deferred tax by the deferred value. For the purposes of this sub-para-graph—

'the deferred value' shall be the value, at the date of the death, of the timber or underwood left out of account in calculating the value transferred on the death;
'the deferred tax' shall be the tax which would have been chargeable on that death if the deferred value (reduced by the amount of any relief under Schedule 10 to of the Finance Act 1976) and the deferred value (similarly reduced) of any other timber or underwood in respect of which tax was previously chargeable under paragraph 2 above had been included in the value transferred on death and the deferred value (so reduced) of the timber and under-wood in respect of which the tax is chargeable had formed the highest part of that value."'.

I propose to move this amendment not formally but succinctly. The principles of it were canvassed, although a little inadequately, by myself and others in the Standing Committee.
This is an amendment of some technicality and I shall not go into it in detail but I shall merely summarise its effects. It is designed to ensure that the rate of capital transfer tax exacted on trees and woodland by reference to a death shall be fixed by reference to the death and not by reference to events that may occur thereafter.
I appreciate that the Government may think me a little churlish for moving the amendment. I detected a slight reservation in their approach to a similar amendment in Committee. No doubt they feel that they have done more than justice to forest owners and those who plant trees by leaving undisturbed the existing fiscal arrangements for income tax and by being a little more liberal in the grants that they propose.
I declare my interest again. I own a small area of woodland in my native hills where I plant trees, mostly conifers. A person is not generally actuated or encouraged to plant trees by the scale of the grants. They may ease the immediate fiscal burden, which is, as all hon. Members will realise, fairly considerable. The immediate return on planting is

negligible. Some people may make a modest living from planting Christmas trees, but I doubt it. The return is in the distant future, not one but two generations on. What looms large in the minds of those who plant trees is not the immediate grant or tax relief—important though they are—but the possibility, if not the probability, that their heirs and descendants will be able to reap something of what they have sown and planted.
We may argue about the reasons, but statistics show that there has been a sharp downturn in planting in the last two or three years. I have heard Treasury Ministers give their explanations and I admit that no firm, dogmatic conclusions can be drawn, but it is at least possible to infer that one of the reasons that people have been discouraged from planting is the possible incidence of capital transfer tax. No grants, however lavish, no income tax relief under Schedule D or even the possibility of a cut under Schedule B will remove that grave damage and uncertainty over forestry.
We need from the Government a recognition that there is a considerable problem that is not met by existing capital transfer tax provisions—not even the relief for business assets. We are talking about a crop that is not reaped within one generation. The Treasury may know of a centenarian who has done that, but most of us, including me, do not expect to reach that age in these gruelling times. I do not expect to see the final cutting of any wood that I have planted, and I suspect that I am not untypical.
These are highly technical matters. No doubt the Minister of State, armed with the devoted researches of Somerset House, will find one or two technical flaws in the amendment. We Back Benchers do our best with our inadequate resources. I shall be satisfied if the Minister of State at least accepts the principle.
The amendment is one of extreme moderation and restraint. I am not asking the Government to accept an amendment that would fix the rate and the quantum by reference to the date of death, but merely the rate. The amendment goes only part of the way and at some other time in some other Bill we shall have to go the whole distance. I have made that point on other Finance Bills and in other debates. But it is a modest half-way


house. The concept underlying it is that the rate should be fixed by reference to the situation at the date of the death so that at least the heirs can know roughly what kind of impost they will have to face.

12.45 a.m.

I hope that the Minister of State will realise that this is a very modest requirement and that, after consultation with his hon. and right hon. Friends in other Ministries, perhaps the Ministry of Agriculture, Fisheries and Food, he will realise that, if forestry is to be given a fresh impetus, it will not be through grants, however generous, but through a more liberal and more understanding realisation of the problems imposed by the introduction of capital transfer tax.

Mr. Farr: I should like to support what my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) has said. I hope that he is being a pessimist when he says that he will see felled none of the trees that he has planted. I hope that he will live to a good, ripe, old age and see some return on his money.
I declare an interest inasmuch as on a relatively small scale I engage in planting trees.
That this is a difficult situation for those who try to plant trees on a serious scale can be guaged by some simple figures that are now available. The planting grants are meagre and do not cover planting costs. However, I obtained some illuminating figures showing that a coniferous plantation planted some 15 years ago and doing fairly well is valued at £70 an acre. During the whole of that time there has been no income from the land. Had the land been in agriculture, today it would have been worth 10 times that amount, £700 an acre, and there would have been the annual income from the crops. Those are just plain facts making it perfectly clear that the dice are loaded against those who go in for private forestry. The incentive is not there, but there is an incentive to grub up old forests and marginal land and turn them over to agriculture.
This country imports more than 90 per cent of its timber requirements and a big forestry planting programme is needed. Both Forestry Commission and private

work should be expanded. This is not the time to discuss the activities of the Forestry Commission, but, fortunately, the foresight of my hon. and learned Friend has provided those of us who are interested with a chance to put in a word for those who are strugglng to maintain in this country some land covered with trees and to help them, as we can, in this Finance Bill.
I hope that the amendment is accepted. On balance of payments grounds we desparately need as many trees as we can grow. The climate of this country is ideal for growing trees and much marginal land is available. if the financial climate is right, for use by private foresters. All that is wrong and all that is discouraging the private foresters and holding everything back is the financial climate. I hope that the Government will do something about it tonight and will recognise the wisdom of the amendment.

Mr. Denzil Davies: The hon. and learned Member for Dover and Deal (Mr. Rees) seeks to change the way in which capital transfer tax applies to forestry. I will not at this late hour go into the details of the assistance which is given to forestry or the tax reliefs available. We have debated this matter before. I do not accept that there are grave disincentives to planning. The Government assist forestry in a number of ways, and this assistance is generally recognised to be very valuable.
On the capital transfer tax point, the hon. and learned Gentleman wishes the rate of capital transfer tax in relation to timber to be fixed by reference to the value of the timber at the date of death and not by reference to the value of the timber at the date of the sale, so that in fact the capital transfer tax would be unaffected by any increases in the value of the timber between the date of death and the date of sale. This goes against the whole scheme of the legislation, which is that no tax is charged until the timber is sold but then the tax is charged on the basis of the sale proceeds, and that is taken as the top slice of the estate to the deceased person.
There is an inconsistency in what the hon. and learned Gentleman and the hon. Member for Harborough (Mr. Farr) said. On the one hand, they accept, as I understand it, that capital transfer tax


should not be charged until the timber is sold, and then they want the charge to apply to the value of the timber at the date of death, and the increase of the value from death to sale to be taken out of account for capital transfer tax purposes. That is inconsistent.
The amendment also seeks to give the business relief again on the value of the timber as at the date of death. I cannot go along with the amendment, but I can say to the hon. and learned Gentleman, without making any commitment, that I am prepared to look, between now and next year's Finance Bill, at the possibility of applying the business relief to the Schedule 9 situation in respect of the sale proceeds—in other words, to consider whether it might not be possible to give business relief to the sale proceeds, as it were, to reduce that value, but not to apply the business relief to the value at the date of death, because that is an inconsistency in relation to the way in which the legislation is framed. But, without commitment, I am prepared to look at the possibility of giving business relief where Schedule 9 relief is now given under the present framework.
I know that that does not go as far as the hon. and learned Gentleman would wish. He said that business relief is not sufficient and that he wants the valuation to be at the date of death and not at the date of sale. I cannot go along with that, but I shall look at the possibility of giving business relief in the Schedule 9 situation in respect of the sale proceeds, not in respect of the value at the date of death.

Mr. David Howell: I think that what the Minister of State has said will be of great interest to a number of people, and my hon. Friends must be congratulated on promoting, at this late hour, the opportunity for the Minister of State to say what he has said. Do I understand from the Minister of Stare's undertaking that he will look at the possibility of applying the business relief for capital transfer tax—the 30 per cent. of valuation—to sales of timber at toe point of sale? I appreciate that the Minister is not saying that it would be at the point of death. Will he consider this for next year's Finance Bill—should there be one under the present Government—or to be

brought forward at some other opportunity? Will he give us the timing of it? These are very important matters indeed.

Mr. Davies: I said that between now and next year's Finance Bill—and these are matters dealt with in the Finance Bill—I will consider it, without commitment, I am not committing myself to making this change. We shall look at it and consider giving the business relief to the sale proceeds in the Schedule 9 situation, but not to change the basis of valuation from a sale basis to valuation at death. I shall consider that, without any commitment, for the purposes of next year's Finance Bill.

Mr. Peter Rees: I am grateful to the Minister of State, who has shown a certain flexibility, and I hope—without wishing to take advantage of his generosity—that he will receive representations from the interested parties. I know that they have made representations in the past, and I hope that he will feel that further conversations, if not with him, with his civil servants, may prove helpful.
In the circumstances, I shall not detain the House by pressing the matter to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Orders of the Day — Clause 47

DEVELOPMENT LAND TAX

Amendment made: No. 73, in page 38, line 33, leave out from 'out' to 'and' in line 34 and insert
'after the date of the part disposal'.—(Mr. Joel Barnett.]

Amendment proposed: No. 74, in page 39, line 6, at end insert—
'(2A) If, in a case where this paragraph applies,—

(a) the realised development value accruing to the chargeable person on the part disposal exceeds
(b) the amount of realised development value which would have accrued to him if, instead of making the part disposal, he had disposed of his interest in the land in which the lease concerned subsists for a consideration equal to its market value on the date of the part disposal,

development land tax shall not be chargeable on the amount of the excess'.—[Mr. Joel Barnett.]

Mr. Ian Stewart: I welcome this amendment, which has been put down in response to amendments moved by the Opposition in Committee in relation to the Government's earlier proposals to get round the anomaly which appeared in the development land tax legislation. We feel that this Government amendment has gone all or most of the way to meet the major problems which emerged from our debate on the taxation of a part disposal of a pre-let development.
Comments have already begun to come in since the tabling of the amendment, and I wish to raise one or two points in the hope that the Minister of State will take them into account and either comment now or consider their implications in relation to the working of this new provision.
First, is there not a problem in a case where the ceiling value introduced by the amendment represents the value of the whole of the landlord's interest, while the letting is a disposal of only part of the interest, since in that case there would be a comparison not of like with like? In practice, where the lease is a long lease there would probably be no difficulty, but in the case of a short lease or one for a relatively short period the anomaly of the pre-letting situation might continue.
It has been suggested that a way of dealing with this would be to apply the formula which is already to be found in Part II of Schedule 2 to the Development Land Tax Act—that is, PD over PD plus MR—to the calculation of the ceiling as well as in the original calculation. That is a very technical point but I am sure that it will not be lost on the Minister of State.
I take next the problem of the basis of valuation. It has been put to us that it would be most unfortunate if the valuation for calculating the ceiling produced an enhanced figure by virtue of knowledge of the pre-letting arrangement at the time. As the clause stands with this amendment, the valuation would have to include, or might include, an element which represented the increased development value arising from the knowledge of the pre-letting itself. Obviously, this would be inequitable because some developments are started after their pre-

letting and others are not, and the tax consequences of the two would differ.
I suggest that in that case it should be normal form when determining the ceiling value which would apply that no pre-letting would be assumed to have been arranged at the date of the deemed disposal.
My next point also is about valuation, and it concerns the question which we raised in Committee regarding the problem of pre-sold developments as opposed to pre-letting. I have had a letter from the Minister of State, dated 14th July, which is so important for those who are interested in this matter that I shall quote from it. The hon. Gentleman mentions the example of a builder disposing of an interest in land to a purchaser and undertaking to bear the cost of putting a house on that land for an overall price covering both the land and the building. He says:
For DLT purposes the date of the disposal of an interest in land is the date of the contract, and we thus have to look at what interest the builder had at that time. In the example I have given, it is an interest in the bare land. On the other hand, the consideration he receives is not wholly consideration for that interest; part of it is for puttng up the house in the future. The composite consideration must therefore be apportioned under Section 4(5) of the Development Land Tax between that part attributable to the interest the builder is disposing of under the contract and that attributable to the work that remains to be done. That being so, I think it right to tell you that the Government do not see any need to put an amendment down to what is now Clause 47 to deal with the pre-sale arrangements.
I accept entirely what the Minister has said about that, but it is a matter of concern outside the House, and I hope that he will be able to confirm that he still has no anxiety that that is the correct position.
1.0 a.m.
A final point about the valuation could arise if the developer acquired land for, say, £100,000 which at that time was the full market value of the land with the benefit of planning permission. If he were to spend, say, £1 million on constructing a building, he might, before the building work was completed, enter into an agreement for the sale of the completed development at a much higher cost —say, £1½ million. In those circumstances, the developer would naturally


argue under Clause 4(5) that the consideration of £1½ million should be apportioned as to £100,000 for the land and the balance of £1·4 million for the cost of the building, interest and profit. But the Development Land Tax Office might argue that a different apportionment should be made on the basis of £1 million for the building work. In that case, the figure for the land would be £500,000 instead of £100,000. That would give rise to quite a substantial tax charge.
The difficulty could apply, in the case, not of a sale and lease-back, but of a lease and lease-back, because this is often the way in which such matters are financed by local authorities. If a local authority wanted to carry out a development, it might well grant a lease to a financing institution such as a pension fund, which would be followed by a lease-back to the local authority for the building and development. In those circumstances, the parties to the contract would perhaps intend that the exchange of both documents should be regarded as simultaneous and the sale of the lease in the first instance before entry into the second part of the lease could produce a high and unreal market value.
Because there are anxieties of this sort about the valuations which may arise under this system, I ask the Minister to take into account that, although clearly Clause 47 and the amendment go all or most of the way to meeting the problem, there is still anxiety about the way in which the valuation provisions may be operated. There is need for the Treasury or the Development Land Tax Office to make clear the basis on which they intend to operate the tax in such cases and perhaps issue guidance notes because in the first instance it will be district valuers who will be making assessments to tax and the taxpayers will have only a right to appeal.
I hope that I shall be permitted to welcome Amendment No. 74 and the underlying clause which we have achieved from the Government.

Mr. Denzil Davies: I am sure that the House and the hon. Member for Hitchin (Mr. Stewart) would not wish me to go into the details of PD over PD plus MR, but a number of the points which the

hon. Gentleman made have been made by the Royal Institution of Chartered Surveyors in a representation to us. There is a satisfactory answer to them and perhaps I can write to the hon. Gentleman on them. I think and hope that he will be satisfied when he receives my letter.

Mr. Graham Page: It is not very satisfactory for the Minister of State to say simply that he will write to my hon. Friend the Member for Hitchin (Mr. Stewart)—or even also to me. We have had considerable representations which show that the clause is not fully understood, and it cannot be understood without the Minister giving a reasonable explanation. It may be understood by my hon. Friend and myself, as well as by one or two other hon. Members sitting in the House, but I would have thought that something ought to be put on the record by the Minister of State. If not, will he give an assurance that very full guidance will go out? Not only surveyors are concerned. We have also had representations from property owners who are not professionals in this business. They need an explanation.
I shall take the Minister's assurance that he has covered all the points raised by my hon. Friend, but I want that assurance to go out to the public in some form. If it is too late tonight to put it on the record in Hansard let us have a promise that there will be guidance to those who deal in property.

Mr. Denzil Davies: Mr. Denzil Davies indicated assent.

Amendment agreed to.

Orders of the Day — Schedule 9

REPEALS

Amendment made: No. 106, in page 78, column 3, leave out lines 12 to 16 and insert 'Section 29(1) and (4)'.—[Mr. Denzil Davies.]

Order for Third Reading read.—[Queen's Consent, on behalf of the Crown. and Prince of Wales's Consent, on behalf of the Duchy of Cornwall, signified.]

1.6 a.m.

Motion made, and Question proposed, That the Bill be now read the Third time.

Mr. David Howell: We now come to the end of a long journey. I am sure that it will be a sense of relief to both sides of the House that we have reached this point. We are glad to learn on Third Reading that there is to be signified not only Her Majesty's Consent but also the Consent of His Royal Highness the Prince of Wales, as you, Mr. Speaker, have so graciously indicated. I hope that it will not be improper for me to ask the Chief Secretary in passing whether he will indicate why the Prince of Wales's Consent, which we greatly welcome, is also to be signified on this occasion?
This has been an unusual Finance Bill. I think that the Chief Secretary will concede that. It has been unusual because the Bill has been almost totally changed during its passage through Second Reading to Third Reading. It has been unusual because throughout the Bill the Opposition have shown the initiative in shaping and changing it. That, of course, is a reflection on the political context in which we live. We have gradually seen a crumbling Government and an Opposition preparing to take over government.
This has been reflected in the Bill where again and again the shape and intent of the Bill has been changed in line with the proposals from this side of the House. What we now have is totally different from that which was presented to us back in April.
At the heart of the Bill are proposals which were introduced against the judgment and the arguments of Treasury Ministers. The increase in personal allowances were condemned as being "utterly irresponsible" by the Chief Secretary when they were first introduced in Committee. But what was "utterly irresponsible" in Committee became—. surprise, surprise—responsible and acceptable at the Report stage.
The amendments, introduced through a combination of the persistence of the hon. Member for Birmingham, Perry Barr (Mr. Rooker) and the persistence and ingenuity of my hon. Friend the Member for Blaby (Mr. Lawson), now bring us nearer some truth and explicit understanding on behalf of the public about the level of tax to which they are being subjected.
These things were introduced in the face of Government opposition, but now the tune has changed from upstairs to downstairs and we have acceptance of these things by the Government. As the Minister of State made clear in candid and frank exposition this evening, this acceptance is totally against his own judgment and presumably that of his Treasury colleagues about what they thought was right. We have seen acceptance because the Government face the realities of a political situation which leaves them in a near powerless minority. In these respects, the Bill has changed greatly.
What is more, the Bill has reached its Third Reading in a totally different economic climate from that in which we began. When we began, the talk was all of deals and of how irresponsible it was of the Opposition to do anything which might embarrass or tarnish the little relationship which was supposedly being built up between the Government and leaders of the trade union movement. All that has gone. The deal has been washed away, and we have a new situation in which free collective bargaining prevails. The great contract which was the bedrock of the Government's existence turns out to have been made of soft sandstone, and we now have responsible collective bargaining, and the Government have arrived totally unprepared to deal with the new situation.
The Opposition have tried gently to lead the Government towards realities which they will have to face if they are to carry the country through the next phase into responsible collective bargaining. I believe that their will to do so is not there, because they have always argued for the opposite policies and said that free collective bargaining was anarchy and that it had to be avoided at all costs. Therefore, far from preparing their own policies for a return to responsible pay bargaining, they have done the opposite. We have tried to lead them away from that absurd position. We have pointed out that they need new fiscal and social policies and new policies in a range of areas if there is to be a sensible return to responsible pay bargaining. We see little sign of them, but we have done our best in this Bill to turn their eyes in the direction of reality.
This will be the last Finance Bill brought forward by the present Labour Government. It brings to an end three years of tax legislation of a kind more disastrous, more complicated and leaving the people more highly taxed under a more burdensome cobweb of tax statutes than ever before in history. Any hyperbole used about the state of the British wage earner under the present tax system is always overtaken by events. A starting rate for the wage earner at 34 per cent. plus the national insurance contribution still puts him at the top of the world league, and that is one league of which we do not intend to remain top once a Conservative Government come to power.
We are left with our tax statutes in unparallelled chaos, with personal taxation still far too high and with appalling disincentives operating at every level. Hon. Members on both sides have done their best to attempt to alleviate this, but we have made very little impact on a situation which requires a far more radical approach. All this will be changed with the change of Government. It will take time, patience and great effort. But, meantime, we must be content with this Bill which, taking account of ever-rising prices throughout the time that we have processed this legislation, brings in net terms to all levels benefit and which is yet another token and symbol of the financial incompetence and fiscal ineptitude of a Government whose end is now very near.

1.15 a.m.

Mr. John Moore: I sat with interest and some patience through all the Report stage of this Bill. When I read the reports of the Committee stage, I felt that it was clearly a Bill of some historical import.
I want first to compliment Back Benchers on both sides and, therefore, the House as a whole. This Bill was a unique opportunity, which was seized by many hon. Members, to reassert to some extent Back-Bench and parliamentary control. I also acknowledge the extent to which Ministers on the Treasury Bench reconciled themselves to the realities of a greater degree of parliamentary control. In the history of this country this is an important change and, whichever party is

in office, I welcome it because it produces ultimately better parliamentary control of expenditure—which is one of the prime rôles of the House of Commons.
Secondly, I wish to touch on the subject of taxation. I do not follow my hon. Friend the Member for Blaby (Mr. Lawson) in the extent to which he and some Liberal Members seems to be so wedded to that principle, but I understand much of the rationale behind the debate. I agree with the Chief Secretary about the degree to which we might become committed and trapped, especially in terms of partial indexation.
I wish that the right hon. Member for Down, South (Mr. Powell) were present for this Third Reading debate because many of us value his comments in scrutinising fiscal matters. I should have liked to pursue some of his points on the limitations of indexation. It may be said that one can trust no politician, whichever political party is in power, under the pressure of modern democratic society, to do other than to seek to spend, and in many cases for justifiable and humane reasons. To that extent we must give a great deal of thought to any changes that are introduced. But even though I do not agree with the principle of indexation in the Bill, I believe that inflation is not just a disease in our society but takes away from both sides of the House fundamental control over expenditure decisions. No politician of repute should be pleased about that.
The other matter I deplore in the general strategy is the degree to which the Budget and its reflection in the Finance Bill does not seem to have faced the fundamental tax problem in Britain. I accept that lower rates are the key with which we must concern ourselves. But we must all face that fact that we are concerned only with the redistribution of a relatively diminishing cake. To that extent we must be concerned to approach the matter in a far more radical fashion. Our country is more than ready for radical changes. To that extent I do not think the Bill justifies the expectations of our country.
I conclude by saying that I do not welcome the Finance Bill—other than to say that there have been exciting historical changes presaged in it, which I do welcome.

1.18 a.m.

Mr. Ian Gow: I wish to comment on the extraordinary saga that has taken place since the Chancellor of the Exchequer introduced his Budget on 29th March, nearly four months ago. We have seen a continuance of the partial conversion of the Treasury Bench to the economic policies put forward by my right hon. and learned Friends. We have seen a commitment by this Administration to the importance of monetary control, although its monetary policies have not been as strict as they ought to have been. [HON. MEMBERS: "Oh."] I am talking of the past, not of the present. There has been a welcome conversion of the present Administration to the importance of monetary control.
Secondly, we have seen an acceptance by the Treasury Bench of the overriding importance of cash limits. That conversion, too, has taken place during the past four months. It is all very well for the Chief Secretary to chuckle, but the important thing to remember is that the Government Front Bench has been converted to the economic policies of my right hon. and hon. Friends.
Lastly, we have seen the conversion of the Treasury Bench away from the policy of the quasi-statutory control of wages. That conversion has not come full circle. We still persist in the nonsensical policy of the so-called statutory control of prices. But I believe that if the Chief Secretary should be occupying his position a year from now we may look forward to a substantial reduction in the level of price control, just as the Treasury Bench has had forced upon it a reduction in the level of wage control.
So we find that the Treasury Bench is inexorably moving on to the common ground that has been laid before it by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). The extraordinary truth is that the policies of those below the Gangway have been discarded by the Government. We welcome the Government's conversion. It is not total, but we look forward confidently to Treasury Ministors moving further towards the economic policies of my right hon. and hon. Friends between now and next year.

1.21 a.m.

Mr. Joel Barnett: This brief debate began with the hon. Member for Guildford

(Mr. Howell) not quite understanding why, Mr. Speaker, you told us about the Consent of Her Majesty and the Prince of Wales. You forgot to mention that it has my consent, too, and that of my right hon. and hon. Friends. I am sure that it will be clear to every other hon. Member that the reason we had to have the Consent of the Prince of Wales as well as of Her Majesty had to do with Clause 50, which is crystal clear to anybody who has read the Bill. I am sorry the hon. Gentleman had not noted the importance of that clause. I am sure that his hon. Friend the Member for Blaby (Mr. Lawson) had understood it.
It has been suggested that this is a somewhat unusual Finance Bill. Certainly there were odd occasions in Committee which were different from other occasions. The hon. Gentleman spoke of it as a historical Bill, because of indexation—

Mr. Lawson: Hear, hear.

Mr. Barnett: However, the hon. Member for Guildford also said that it was the tiniest of tiny little mice of change, forced upon us by his hon. Friend the Member for Blaby and some of my hon. Friends. The hon. Gentleman did not quite put it in that way, because he is very modest, but he did say that it was a small matter. We have noted how little the hon. Member for Blaby has managed to drag his hon. Friend along behind him.
What is interesting about the Bill, despite the interesting changes made during its passage, is that the basic Budget strategy remains. The total levels of tax relief set out in the Budget are now set out in the Bill, and are broadly in line. The personal allowances have been tilted in favour of married couples in the way we have suggested, and the House has been pleased to accept that tilt.
The hon. Member for Guildford said that the Third Reading took place in a different climate, and he was absolutely right. The House will rise on Friday and, happily, we shall not see each other again until the end of October, by when the economy will be well on the way to recovery.
The hon. Gentleman also said that this would be the last Finance Bill of this Administration. It will be the last Finance Bill of this Administration this year, but there will be another in 1978 and


another in 1979, and I am sure that they will continue the trend to bring relief in the tax system to those who reqiure it, in fairness and equity, improving the system as we go along, with the help of my hon. Friends and some Opposition hon. Members.
I have the greatest pleasure in commending the Bill for Third Reading, which I am sure it will receive with acclamation.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Orders of the Day — INSURANCE BROKERS (REGISTRATION) BILL

Lords amendments considered.

Orders of the Day — Clause 3

QUALIFICATIONS FOR REGISTRATION

Lords amendment: No. 1, in page 2, line 19, leave out "for a period of not less than five years".

Mr. Deputy Speaker (Sir Myer Galpern): With this we may take Lords Amendments Nos. 2, 3 and 4.

1.25 a.m.

The Under-Secretary of State for Trade (Mr. Clinton Davis): I beg to move, That the House doth agree with the Lords in the said amendment.
Amendments Nos. 2 and 4 are substantive amendments replacing references to "an authorised insurer" by references to "an insurance company". They also, together with Amendments Nos. 1 and 3, change the order of word in paragraphs (e) and (f) of subsection (1) to make drafting consistent with other paragraphs in the subsection.
The words
or by an authorised insurer
were added at the end of paragraphs (e) and (f) as a result of an amendment tabled on Report by the hon. Member for Faversham (Mr. Moate) and accepted by the House. On reflection, however, these words are not quite appropriate. They are obviously intended to mean any insurer doing business in the United Kingdom. But the phrase "authorised insurer" is in fact defined in Clause 29(1) —in view of its use in Clause 12(3)—to mean only insurers authorised to carry on liability or pecuniary loss insurance business. In these circumstances the phrase "insurance company" expresses the intention of Clause 3(1) more accurately than "authorised insurer".

Mr. Roger Moate: The Minister has helpfully explained the object of Amendments No. 1, 2, 3 and 4, and has also told us that these are amendments to the amendment that I moved at Report stage some months ago.
It will be appreciated that these four amendments relate to Clause 3 which is


one of the most vital clauses of the Bill. Clause 3 sets out a whole range of permutations describing the criteria necessary for a broker to qualify for registration. It is something of a relief that these various criteria are alternatives, because the word "or" was inserted as a result of another amendment I moved at Report stage. Otherwise the fear was that they would be cumulative conditions. [HON. MEMBERS: "Declare your interest."] I have declared my interest as an insurance broker on many occasions and I am not sure that it is necessary to do so. If I have any interests they are opposite to the course I am advocating here. I gain no financial interest from advocating this course.
The four amendments can be broken down into two groups. The first group requires, in effect, that a person needs to be employed for five years, either by an insurance broker or by an insurance company. It is interesting to note that this clause comes nearer to giving a definition of an insurance broker than any other part of the Bill. It says that a person may register as a broker provided
that he has carried on business as an insurance broker, or as a whole-time agent acting for two or more insurance companies in relation to insurance business, for a period of not less than five years.
1.30 a.m.
Nowhere else in the Bill is there a definition of "insurance broker". Nevertheless, we still have the proposition that one shall have had practical experience for five years to secure registration. That, too, is a distinct improvement on the Bill as originally drafted. It then laid down that a person should have been a principal or partner in a firm of insurance brokers before qualifying for registration. I readily concede that there is a distinct improvement on the Bill as originally drafted.
But that original restriction gave rise to doubts about the intentions of those who drafted the Bill. It seemed to indicate a restrictive approach on their part that caused concern about the way in which the Bill was conceived and how it would operate in practice.
That deals with the first group of amendments relating to five years experience through employment with an authorised insurer. The amendment seeks to substitute "insurance company".
Amendments Nos. 3 and 4 put the alternative proposition—that, in effect, somebody can be employed for three years by a broker, whole-time agent or authorised insurer linked with the additional condition of some form of examination qualification. We have the alternatives of five years practical experience or three years plus an academic qualification.
It is important to note that even these conditions are subject to a further requirement—Clause 3(2)(b)—that, even though a person has been employed by an insurance company or authorised insurer—that is the point at issue—he must still have
had adequate practical experience in the work of an insurance broker".
We have this other strange test that, a person having been employed by an insurance company or authorised insurer, he still has to prove that he has gained adequate experience as an insurance broker. That is a difficult criterion to prove.

Mr. Richard Body: My hon. Friend is right to make that point. Is it not a fact that, as a result of the Committee stage, a series of "ors" has been inserted so that these different qualifications to enable somebody to go on the register are in the alternative? Is not the position now that one need have only a few minutes' experience in an insurance office to be entitled to be placed on the register?

Mr. Moate: I bow to my hon. Friend's considerable legal knowledge, but, with respect, he has probably misunderstood the point that I was making. Paragraphs (a) to (h) are alternative criteria, but the majority are still subject to the general provisions in subsection (2)(a) that a person has to satisfy the Council
as to his character and suitability to be a registered insurance broker; and
(b) in a case falling within paragraph (a), (b), (e) or (f) of subsection (l) above, that he has had adequate practical experience in the work of an insurance broker".
The majority of the preceding criteria are subject to the subsequent requirements of suitability of character, adequate practical experience and so on.
I apologise, Mr. Deputy Speaker, if I was deviating slightly from the amendment, but I was responding to an intervention by my hon. Friend the Member for Holland with Boston (Mr. Body).

Mr. Deputy Speaker: Order. The hon. Gentleman has noticed that I am holding a copy of the Bill. I am trying to see how far he is straying from the relevancy of what we are discussing.

Mr. Moate: It is significant that we are being asked to amend the term "authorised insurer" to "insurance company". I am surprised that we should be asked to do that because of the amendment that I moved on Report which was accepted. The phraseology seems appropriate. My wording was not challenged by the Minister with all the resources that he has available to him. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) who has pursued this matter so diligently, did not challenge my wording.
I chose the phrase "authorised insurer" because it seemed logical. A definition appears in Clause 29 of the Bill. It states that
authorised insurers" means a person permitted under the Insurance Companies Act 1974 or the Insurance Companies (Northern Ireland) Order 1976 to carry on liability insurance business or pecuniary loss insurance business".
I thought that that was a sensible phrase to use to describe a person conducting this business
.
Further down the page appears a definition of an insurance company. It states:
'"insurance company" means a person or body of persons (whether incorporated or not) carrying on insurance business'.
A further definition states:
'"insurance business" means insurance business of any class relevant for the purposes of Part I of the Insurance Companies Act 1974, or Part II of the Insurance Companies (Northern Ireland) Order 1976, other than industrial assurance business, and "insurance broker" shall be construed accordingly'.
To find out further what an insurance business is we must turn back to the Insurance Companies Act 1974 and from that it seemed logical that "authorised insurer" was the appropriate phrase.

Mr. Clinton Davis: Is the hon. Member saying that he prefers the phrase "authorised insurer"?

Mr. Moate: It seems to me that there is a case for the phrase "authorised insurer", but I am not sure. The Insurance Companies Act is not as specific as I should have liked. Section 2 of that

Act contains the heading "Authorised Insurers" and it refers to the generality of insurance companies operating in the United Kingdom. The description also includes members of Lloyds, friendly associations, trade unions, employers' associations and the generality of insurance companies.
The situation becomes a little confused when one examines another description in Section 83 of the Act where pecuniary loss insurance and liability insurance are defined as separate categories. Longterm insurance business does not include industrial insurance. Liability insurance business includes marine and transport insurance, motor vehicle, personal accident, property, and aircraft insurance. For some odd reason these are all separate whereas under the Insurance Brokers (Registration) Bill pecuniary loss insurance has been segregated and disregarded as authorised insurance.
Therefore, from the 1974 Act, which is what I was referring to when I tabled my original amendments; it seemed to me that by Section 2 all insurance companies came under the term "authorised insurers". It is still not clear why there should now be this odd description. It seems logical and common sense to use the term "authorised insurers" to describe all those companies authorised to transact business under the 1974 Act.

Mr. Body: I am not quite clear about my hon. Friend's description of "authorised insurer". The definition in the Bill appears to be clear. Can he say from his experience of the insurance industry whether the phrase "authorised insurer" is being introduced for the purpose of this Bill or is it an accepted term? If it is an accepted term and one that has been used on other occasions, can my hon. Friend say which occasions they would be?

Mr. Moate: I think that my hon. Friend is misunderstanding my general experience in this matter. I imagine that those most concerned about this terminology are those engaged in the insurance company business rather than in insurance broking and who have to make regular returns to the Department of Trade.
Generally speaking, the term "insurance company"—the common-or-garden


term employed in the Lords amendments —is the one that we would accept. It is strange that we have this total confusion derived from the term "authorised insurer" in the 1974 Act, Section 2 of which sets out those companies which shall be authorised to transact insurance business in the United Kingdom.
I hope that the House will understand why I thought "authorised insurer" was the right term. The inclusion of the words "authorised insurer" or "insurance company" has considerable consequences. At the outset of the Bill the promoters were anxious that persons employed by authorised insurers or by insurance companies should not be able to register as insurance brokers on the basis of their practical experience with insurance companies or with authorised insurers. It seemed to me an undesirable approach to this sort of legislation.
But I am glad that at least the House of Lords has not sought to strike out this provision but has decided that employment by an insurance company or authorised insurer should be a reasonable qualification. In my experience, shared, no doubt, by other hon. Members, many of the people who have established themselves as insurance brokers have done so on the basis of employment by insurance companies or authorised insurers—whichever phrase the House decides to adopt. It is wrong to adopt a more restrictive approach. It conveys confusion of mind or lack of understanding amongst the promoters about the interchange between the insurance company world and the insurance broker world.
1.45 a.m.
To suggest that one ought to have had insurance broking experience exclusively to become qualified as a broker, and not simply to be able to call upon the resources of insurance company experience, is wrong. In support of that argument we managers, inspectors, or general managers of insurance companies or authorised insurers, and I am glad that my hon. Friend the Member for Harrow, West (Mr. Page) eventually saw the logic of the case and it is included in the Bill. It is important to us to decide the right terminology, but the principle is established, and that is a major step forward.
It seems that in future, instead of having legislation that prevents tens of thousands of potential insurance brokers currently employed by insurance companies from establishing themselves as insurance brokers, they will have greater freedom to establish themselves in a way that can be only for the good of consumers, of policy holders, and of the country as a whole.
It is the freedom for people to establish themselves that is being taken away. That is why I object to many of these provisions. Where we have had freedom in the past, now there will be regulation. Where we have had freedom that has been beneficial to the consumer, now there will be regulation that will be damaging to the consumer. Where we have had enterprise that has created one of the greatest growth industries in this country and as been manifestly benefical to the people of this country, at home and abroad, in future we shall have greater bureaucracy and control. That is why I object generally to these provisions.
But at least in this respect we have gained a little, and their Lordships have confirmed this by tabling their version of my amendment.
It may be that, in view of the Minister's explanation and what their Lordships have said, there is a case for subsitiuting "insurance company", the ordinary common sense meaning of the word, for "authorised insurers". It would not be my wish to restrict the Bill unnecessarily. Subject to what others say, it may be that this is a sensible improvement and merits inclusion in the Bill.
However, that is only part of the proposition. These amendments refer also to the question of the time factor. They lay down that in one case it should be a five-year practical experience qualification, and in the other that it should be an alternative of three years' practical experience plus the qualification of an examination. In the first place their Lordships sought to delete the three and five year limits, and they then reintroduced them. That gives me the opportunity—I think within the rules of order—to question the logic—if that is the right word—of the proposition that somehow a qualification is equal to two years' experience.
I am sceptical about this idea. It is impossible to quantify the value of an examination in terms of practical experience. It is odd that the House of Commons should seek to lay down in legislation that the ACII qualification is equal to two years practical experience, which is what it is trying to do. I do not wish to devalue the importance of the ACII qualification. It is an important one. One would wish to see many more persons in the insurance broking world qualifying with this examination. I do not wish to disparage that, and it may be that by inserting such a provision more people will be encouraged to become qualified.
It is odd that we should seek to lay down the value of a qualification in terms of practical experience. No employer would offer to take on at a certain salary a person who had five years' experience in the industry or three years' experience and the ACII qualification. Insurance broking is a commercial activity. My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) always tells us that it is a profession, but I am proud that it is commercial and is highly competitive and successful. I declare my interest. I did not conclude my qualifications, but even if I had, I should still be arguing the same case.

Mr. Clinton Davis: On a point of order, Mr. Deputy Speaker. Is it in order for the hon. Gentleman to deploy these arguments at length? The only substantive amendment incorporates a reference to an insurance company instead of "authorised insurer". The other amendments involve a change in the order of words. There is no substantive amendment there.

Mr. Deputy Speaker: I was pondering whether it is on order to try to equate a certificate with the ability to work in an industry or commercial undertaking. I think that the hon. Member for Faversham (Mr. Moate) is going a little too far. I do not know his underlying purpose, but he is making heavy weather of the whole business.

Mr. Moate: The Minister may be correct in saying that there is only one substantive amendment, but the amendments leave out references to periods of

not less than three and five years and insert:
insurance company, for a period of not less than five years
and the same provision relating to not less than three years. Presumably one is entitled to ask "Why five years in one amendment and three years in the other?" The difference is academic qualification, and I am seeking the justification for the distinction. I do not say that there is no distinction. I merely ask how it was arrived at.
Insurance broking is a commercial business that depends on flair, determination and sales skills as much as on the professional standards of integrity and honesty that have characterised the industry and helped it to its success. It does not depend on academic qualifications, and it is odd that academic qualifications should be one of the criteria of the Insurance Brokers Registration Council. We want to encourage academic qualifications, but to lay down in statute form what their value is in relation to practical experience is a little unreal. Anybody with practical day-to-day experience of hiring and firing will understand the point.
I do not wish to expand on these matters at any length, because there are so many other amendments that we wish to reach, but the rule about five years and three years begins the whole question. In a highly commercial world it is illogical to try to lay down standards of this kind.
I hope that the House will have understood why I thought it right to include the words "authorised insurer" in the first place. The position seems to be somewhat confused by the Insurance Companies Act 1974 itself. However, on balance I accept that technically "insurance companies" in a better phrase than "authorised insurer". It is certainly more common sense and a more common phrase and in that sense it seems likely that one would accept it, but that depends on what other arguments are deployed by other hon. Members.

Mr. Body: First let me pay tribute to my hon. Friend the Member for Harrow, West (Mr. Page) for being so successful in piloting the Bill through to this stage and for so obviously mastering all the


intricacies of the law of insurance in a way which made me marvel when I read through, as I did, some of his speeches in Committee. Whether this is his Bill or the Bill of some hon. Members opposite I am not too sure, and perhaps as we proceed in this debate we shall see exactly whose Bill it is. I recognise my hon. Friend's motives in introducing the Bill—

Mr. Deputy Speaker: Order. I do not wish to rob the hon. Member for Harrow. West (Mr. Page) of any tributes, but we heard all that when the hon. Member got his Bill through the House of Commons stage. Let us get on with the subject matter of the Lords amendments.

Mr. Body: I would not have repeated myself, but we do not have a Third Reading at this stage and that was the only tribute that I could pay to my hon. Friend, and I felt that I ought to pay it, particularly if I am in any way guilty of keeping him from his sleep later tonight. The least I could do was to pay that tribute to him.
Clause 3 goes to the root of the Bill. It is, therefore, a clause that we must examine very carefully to ensure that we have the right phase inserted, "insurance company" rather than "authorised insurer", the phrase previously in the Bill. I am not sure whether we are making the right decision in removing the operative words inserted previously in paragraph (e) and (f).
One should be apprehensive about this change that the other place seeks to make. First, the Bill was obviously drafted with great care and the phrase "authorised insurer" must have been chosen with great deliberation. I am at a loss to understand why it was accepted by the Government right through Committee stage and until the Bill got to the other place and then it was suddenly found that the phrase "insurance company" was a better description than "authorised insurer".
What seems to be plain is that "authorised insurer" is a narrower term than "insurance company". My hon. Friend the Member for Faversham (Mr. Moate) has dealt with some of the definitions and I shall not repeat what

he said, but it seems to be a great significance that the essential difference is that an authorised insurer is concerned with the carrying on of a liability insurance business, or pecuniary loss insurance business, whereas an insurance company may not do so.
2.0 a.m.
I regret very much that the Under-Secretary of State has not explained a little more to the House why we have dropped down, as it were, to merely an insurance company. It may be that there is a wide range of insurance companies which do not qualify as being authorised insurers in the sense that they do not carry on a liability insurance business or a pecuniary loss insurance business. I do not know whether you have considered that particular point, Mr. Deputy Speaker, but you might have been puzzled, as I have, whether there could be any kind of insurance company that did not embark upon one or other of those two items of business, namely, carrying on a liability insurance business or a pecuniary loss insurance business. One would have thought that that was the sole function of an insurance company, to repair people's pecuniary losses in return for premiums that would be paid from time to time.
Now that the Government have been persuaded at this stage to adopt the term "insurance company", I ask the Under-Secretary of State—and perhaps my hon. Friend the Member for Faversham if he is to reply to this—whether there are not some dangers ahead. If the Bill were to safeguard the public from the sharks, or those who are inexperienced, I should certainly be supporting it, but it is because, in my humble judgment, it will not safeguard the public from the sharks, nor from those who are inexperienced, that I have my reservations about the Bill.
There are three categories of company which may be included in this definition of insurance company yet which, I suggest, should not be. In the first place, it is notorious that there were two or three insurance companies which let their policy holders down in a disgraceful and, indeed, criminal way. I do not know to what extent those companies have now been wound up. Perhaps the Under-Secretary of State will assure us about it.


But if they have not been wound up and are still registered, and therefore in a legal sense still functioning, it must follow that any employee, although he may not be actively employed now, might come to acquire a qualification or would be assisted in acquiring a qualification to entitle him to a place on the register.
I am concerned, secondly, with those companies which are not authorised insurers. Despite what my hon. Friend has said in his very careful description of the consequences of this change in the law, I am not at all sure what kind of insurance companies come into the category of being something less than authorised insurers. There must be some of them, certainly, who have not got this permission under the Act to carry on a liability insurance business or a pecuniary loss insurance business, yet are none the less in some sort of cold storage at the moment.
We are all aware of the law that every limited company must have a secretary. Even if the company is not trading or carrying on business in the strict literal sense, it must none the less have a secretary, who may be acting for other companies as well, which in turn may have a certain staff. We all know that there are many firms of accountants which accept the secretaryship of companies, often small private companies, which are not actively trading at the time.
It seems to me that if there were in existance an insurance company which did not qualify for being an authorised insurer and therefore did not have permission to carry on liability insurance business or pecuniary loss insurance business, it could none the less have a member of its staff qualifying for registration under this head although that member of staff had no experience whatever of insurance and, indeed, was a thousand miles away from the practice of insurance. Indeed—I shall be corrected if I have misunderstood—it seems to me that if company secretaries were employed by an insurance company and they in turn had secretaries or shorthand typists, they, too, would come under this head.
The third category of company to which I refer includes those which are not set up primarily for the purposes of insurance. Every company formed today, when settling its memorandum and articles

of association, makes them as broad as possible so that no act it does later will be likely to be ultra vires. The drafting of some memoranda and articles is in the widest possible form. Indeed, most companies nowadays go to a law stationer's office where there are standard forms of memoranda and articles adaptable for almost anything—perhaps even making suits or something far removed from insurance, yet having clauses giving power to insure as well as to do many other things.
Are such companies nevertheless insurance companies? I appreciate that "insurance company" is defined in Clause 29 as meaning
a person or body of persons (whether incorporated or not) carrying on insurance business".
But what is meant by a firm "carrying on"? One may seek the aid of a legal dictionary, but that does not take one much further. In law, one can be carrying on a business although one is not actively engaged in it. That may sound a complete nonsense, but I can take an example from my own profession. A barrister may be utterly briefless—[Interruption.] The hon. Member for Norwood (Mr. Fraser) may know about this from his experience, though limited in the sense that he is not a barrister. Having one's name added to the list on a door at chambers in the Temple puts one in the position of carrying on as a barrister, but one may be wholly brief-less, with no work to do year in and year out.
I assume that that analogy could be applied to insurance companies. There might be those entitled to carry on as insurance companies by their memoranda and articles yet failing to do so because no one was seeking to obtain any policy from them.

Mr. Moate: My hon. Friend refers to organisations with wide scope. Does he realise that under the Insurance Companies Act the term "authorised insurer" includes a trade union or employers' association in which the insurance business carried on by the union or association is limited to the provision for its members of provident benefits or strike benefits? Therefore, far from it being a narrow phrase, it seems to include under the 1974 Act bodies which one would not


normally have thought of as insurance companies.

Mr. Body: I do not know whether my hon. Friend the Member for Harrow, West agrees with that. I hope that he will contribute to the debate and will deal with our apprehensions. What my hon. Friend the Member for Faversham has said seems to make even greater nonsense of the Bill.
I should have thought that "authorised insurer" was a perfectly adequate term. It seems to be understood in law. It should be retained in the Bill and not abandoned for the rather loose phrase "insurance company". I realise that the term "insurance business" is also defined and, to that extent, it may well qualify what I have said. Nevertheless, a further explanation is called for so that we may know what we are about in adopting the phrase chosen in the other place rather than the one which was accepted by this House.
We understand from the definition of an authorised insurer on page 20 of the Bill that it "means a person permitted under" certain legislation to do this and that. How are partnerships affected? Perhaps my hon. Friend the Member for Harrow, West will enlighten me about this matter. I have an open mind about the amendment and about whether we should adopt the phraseology preferred by the other place. Can a partnership qualify for permission under the Insurance Companies Act 1974?
My other anxiety is about the period of years which has been deleted from the Bill. I understood that the prime purpose of the Bill was public protection. I know that that was not quite how my hon. Friend the Member for Harrow, West put it. I think that he gave another reason first. He wanted to strengthen the insurance business and, in particular, to maintain our position in the EEC. He said that that was the first reason for the Bill. But he went on to say that public protection was also a very material argument for the Bill. If that was so, I would support it. But if it is so, surely we should be vigilant about deleting the period of five years. The Lords amendment in Clause 3(1)(e) would have the effect of deleting the period of five years.

Surely the door is open to the sharks who, if minded to set out with some wilful intent to defraud the public, could work in an insurance company for merely a week or even less and still acquire that qualification which the other place has now made.
2.15 a.m.
If we are concerned with public protection and with trimming the power of the sharks surely we should be insistent upon retaining that period of time. Equally, our anxiety about insurance brokers having experience is another reason for retaining a period of time.

Mr. Moate: It has been repeated often that this is a measure of consumer protection. But has not that argument been shot to pieces on many occasions by the defenders of the Bill who, every time it is alleged that a person could be put out of business, answer that he would not? Even if he were a shark, presumably a person would be able to carry on as long as he did not use the term "insurance broker". He could carry on as an insurance consultant, insurance intermediary, insurance adviser or any other such name. This is not, therefore, a measure of consumer protection.

Mr. Body: I agree. That is why this is an unsatisfactory Bill. If we were legislating against the sharks I would be supporting the Bill wholeheartedly.
The term "insurance broker" is used in the Bill but it is not defined. I am disappointed that it has not been defined.

Mr. Clinton Davis: It is not referred to in this amendment.

Mr. Body: We are concerned with the qualifications of an insurance broker. Clause 29(1) refers to the term "practising insurance broker" but those who read the Bill are invited to construe that term in relation to an insurance business.
However, as my hon. Friend the Member for Faversham pointed out, the mischief of the qualifications that are set out is that those persons who may have those qualifications but who fail to register may carry on effectively as inurance brokers by calling themselves consultants, agents and the rest.
The term "insurance broker" is used by the British Insurance Brokers'


Association. I gather that it has accepted a definition which is as follows:
persons who, acting with complete freedom as to choice of undertaking, bring together with a view to the insurance or reinsurance of risks"—

Mr. Deputy Speaker: Order. I am sorry to interrupt the hon. Gentleman. I know that the hon. Member for Faversham (Mr. Moate) is due another intervention in a couple of minutes. However, we are not dealing with insurance brokers. I know that the hon. Gentleman is struggling hard, but I think that he is introducing extraneous matter. Let us stick to Lords Amendments Nos. 1, 2, 3 and 4 as they appear on the Amendment Paper.

Mr. Body: I shall be very brief. I am conscious that I have broken my rule of brevity which I intended to keep.

Mr. Deputy Speaker: I am glad to have come to the hon. Gentleman's aid

Mr. Body: In my submission the other place has failed to improve the Bill by making these changes.
From an insurance broker, one seeks integrity and an understanding of one's needs. None of these qualifications will do anything to further that aim, which surely must be the aim of everyone seeking an insurance policy. I believe, therefore, that this amendment is a disappointment and that we should consider very seriously whether we should accept it.

Question put and agreed to.

Lords Amendments Nos. 2, 3 and 4 agreed to.

Orders of the Day — Clause 4

LIST OF BODIES CORPORATE CARRYING ON BUSINESS AS INSURANCE BROKERS

Lords amendment: No. 5, in page 3, line 17, leave out from "of" to "to" in line 18 and insert:
all bodies corporate which are entitled under this section

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.
The amendment is necessary to ensure that the list of enrolled bodies corporate includes Lloyd's brokers as well as those who qualify for enrolment under subsection (2).

Mr. Moate: I am grateful again to the Minister for the brevity of his explanation. However, I do not think that the matter can be left like that.
This amendment relates to matters of some considerable significance, but it is very oddly drafted. I understand from the arguments originally advanced when it was moved in another place that it was necessary to broaden the phraseology in Clause 4 to ensure that Lloyd's brokers would be brought within the definition of
the bodies which are entitled… to be enrolled therein".
As the clause reads at present, there is a reference to
the bodies which are entitled under subsection (2) below",
and it leaves out any reference to subsection (4), which reads:
a body corporate shall be entitled to he enrolled in the list if it satisfies the Council that it is accepted as a Lloyd's broker by the Committee of Lloyd's.
Surely it would be simpler to say
the bodies entitled under subsections (2) and (4) below".
That would embrace Lloyd's in the sensible and desirable manner. But the phraseology has been changed so that it now reads:
all bodies corporate which are entitled under this section".
That allows one to consider the reason for this proposition. We know that a number of different bodies corporate will be entitled to be registered and to practise as insurance brokers. Subsection (2) says:
a body corporate shall be entitled to be enrolled in the list if it satisfies the Council (a) that a majority of its directors are registered insurance brokers; or (b) in the case of a body corporate having only one director, that he is a registered insurance broker; or (c) in the case of a body corporate having only two directors, that one of them is a registered insurance broker and that the business is carried on under the management of that director.
Their Lordships' amendment refers to all these categories of bodies corporate, and further extends it to include Lloyd's brokers, under subsection (4).
I wish to raise two matters. The first is that of course it makes sense that Lloyd's brokers should have automatic qualification. Lloyd's brokers have to go through very considerable tests in


order to remain Lloyd's brokers. They have to stand up to solvency tests. They have to make solvency returns. There are much greater safeguards for Lloyd's brokers than there are generally for brokers throughout the country.
There could be legitimate ground for complaint from many small brokers who will have to go through these routines when they see many of the substantial Lloyds's brokers getting through these fairly stringent tests far more easily. It might be an unfair suspicion, but we do not know the terms and conditions under which the small brokers might have to register. We do not know the accounting criteria which they will have to meet or what surplus of assets over liabilities they will have to declare. It is possible that they will have to meet conditions more stringent than those applied to Lloyd's brokers. That would be unfair, but it is difficult to say whether it would be fair or unfair until we see the regulations. Lloyd's brokers would be seen by other brokers as a privileged group. There would be a sensible request for them to gain exemption, but it is important to make sure that the small brokers throughout the land are not discriminated against in this respect.
Individual brokers will have to submit accounts at regular intervals—it could be annually—whereas Lloyd's brokers have to produce solvency certificates. I would not like to think that the small broker would have to produce a relatively greater surplus of assets over liabilities than one of the large Lloyd's brokers, and I am sure that the House would not wish to grant privileges in that respect. I suspect that when the Secretary of State considers the regulations he will bear that point in mind. I think that for the good of the insurance broking industry generally, it is right that there is no preferential treatment accorded to one group compared with another group.
The other point relates to the question of bodies corporate which are entitled to registration. I wish to refer to Clause 4(2)(a) which refers to a situation in which
a majority of its directors are registered insurance brokers".
I wish to register a protest that my hon. Friend the Member for Harrow, West (Mr. Page) and the promoters of the Bill

have not seen fit to modify that most unreasonable proposition. There are many substantial commercial houses which have within them insurance broking departments, and they are insurance broking departments in every sense of the word. They carry on business for the benefit of the public. There is no suggestion that they are in any sense doing the public a disservice, but under these provisions such bodies will have to alter their constitutions.
I am referring in this context to certain banks—in other words, to large banks with substantial insurance broking sections. These are departments of firms, not separate limited liability companies. Since they are departments, the majority of the directors of the bank would not be registered insurance brokers. I put this point to the promoters of the Bill, but they did not agree with it—

Mr. Clinton Davis: Deal with the amendment.

Mr. Moate: The Minister tells me to deal with the amendment. But I would remind him that the amendment relates specifically to
bodies corporate which are entitled under this section"—
and that paragraph (a) includes this point. Therefore, the Minister before making such comments should carefully study the amendment we are debating.
The promoters of the Bill have done a grave disservice to certain of our banks. Banks are only one of the examples to be given. No doubt large contracting firms have insurance broking departments. But by the provision as it stands such people will be disqualified from calling themselves insurance brokers. Can anybody say what good that does to the public? I suggest that it does the public no good whatever. This is making a change for change's sake, and indeed for bureaucracy's sake. It could be achieved by a relatively minor amendment, without doing any damage to the Bill. But since that has not been done, it is one more reason for objecting to the Bill.
The Lords amendment is not very well drafted. Its object could have been achieved much more easily by extending it to include the Lloyd's brokers' subsection, subsection (4). But as it clearly remedies a serious defect in the Bill, the House should agree with their Lordships.

2.30 a.m.

Mr. Body: We should be given an explanation why this gap has had to be filled by the other place. One wonders why those drafting the Bill overlooked the matter. I acquit my hon. Friend the Member for Harrow, West (Mr. Page) of any blame, as he is not a member of Lloyd's and is not in the insurance business. But it is astonishing that at this late stage we should have to amend the Bill to include Lloyd's brokers. It is obvious that they should have been included from the beginning. They should have had an explanation from those in charge of the Bill why they were overlooked.

Question put and agreed to.

Orders of the Day — Clause 5

APPEALS AGAINST REFUSAL TO REGISTER OR ENROL

Lords amendment: No. 6, in page 3, line 39, leave out from beginning to "appeal" in line 42 and insert:
Before refusing an application for registration under section 3 of this Act or an application for enrolment under section 4 of this Act, the Council shall give the person by whom or the body corporate by which the application was made an opportunity of appearing before and being heard by a committee of the Council.
(1A) Where the Council refuse any such application, the Council shall, if so required by the person by whom or the body corporate by which the application was made within seven days from notification of the decision, serve on that person or body a statement of the reasons therefor.
(1B) A person or body corporate whose application is so refused may within twenty-eight days from—

(a) notification of the decision, or
(b) if a statement of reasons has been required under subsection (1A) above, service of the statement,"

Mr. Moate: I beg to move, as an amendment to the Lords amendment, after first "made"—

Mr. Deputy Speaker: Order. We are taking with Lords Amendment No. 6 the amendment in paragraph (1B).

Mr. Moate: On the Notice Paper there is the amendment,
after first 'made' insert 'and his or its advisers and representatives'.

Mr. Deputy Speaker: This gives the Chair an opportunity to filibuster. Let us get the matter straight. The hon. Gentleman tabled several amendments, but the only one to be selected is that in paragraph (1B) "leave out from 'may' to end of the paragraph".

Mr. Moate: Thank you for that explanation, Mr. Deputy Speaker. I have now grasped the point. It is a matter of some disappointment to me that not all my amendments were selected. I clearly concluded that an even better one was to be called.
I beg to move, as an amendment to the Lords amendment, in paragraph (1B) leave out from 'may' to end of the paragraph.
I welcome the proposition that there should be a more extensive procedure for an appeal system and that individuals should be able to receive a statement of the reasons for the possibility of a declinature of their application, but I can see no logical reason for the proposed limitation of time. In the case of an erasure from the register I can well understand that there is a need for a time limit. If a person has committed a misdemeanour it is logical that he should not be able to carry on in business indefinitely. But it is illogical that this burden should be put upon a new applicant that he must decide to appeal to the court within 28 days. I can see no advantage to anybody in that respect, and I would have thought that the deletion of these words made sense.

Question put, That the amendment to the Lords amendment be made:—

The House divided: Ayes 2, Noes 46.

Division No. 211]
AYES
[2.36 a.m.



Rooker, J. W.




Skinner, Dennis



TELLERS FOR THE AYES:


Mr. Roger Moate and


Mr. Richard Body




NOES


Allaun, Frank
George, Bruce
Penhaligon, David


Atkins, Rt Hon H. (Spelthorne)
Gower, Sir Raymond (Barry)
Rathbone, Tim


Berry, Hon Anthony
Grant, Anthony (Harrow C)
Renton, Tim (Mid-Sussex)


Booth, Rt Hon Albert
Harrison, Rt Hon Walter
Rhys Williams, Sir Brandon


Carlisle, Mark
Jackson, Miss Margaret (Lincoln)
Shersby, Michael


Cattle, Rt Hon Barbara
Jones, Arthur (Daventry)
Smith, John (N Lanarkshire)


Cocks, Rt Hon Michael (Bristol S)
Kimball, Marcus
Snape, Peter


Cohen, Stanley
Le Marchant, Spencer
Urwin, T. W.


Davies, Bryan (Enfield N)
McCrindle, Robert
Ward, Michael


Davis, Clinton (Hackney C)
Meacher, Michael
Weatherill, Bernard


Dempsey, James
Meyer, Sir Anthony
Wise, Mrs Audrey


du Cann, Rt Hon Edward
Miller, Hal (Bromsgrove)
Woodall, Alec


Elliott, Sir William
Morrison, Charles (Devizes)



Evans, John (Newton)
Morrison, Hon Peter (Chester)
TELLERS FOR THE NOES:


Farr, John
Newton, Tony
Mr. Frank R. White and


Faulds, Andrew
Noble, Mike
Mr. Alf Bates


Fraser, John (Lambeth, N' w' d)
Page, John (Harrow West)

Question accordingly negatived.

2.45 a.m.

Mr. John Page: I beg to move, That the House doth agree with the Lords in the said amendment.
The amendment puts into the Bill a provision which I always thought existed. It provides methods of appeal to individual brokers before they are refused registration. That is helpful and satisfactory. I am grateful to the noble Lord, Lord Selkirk for raising the matter and for incorporating his ideas with others in the amendment.

Mr. Moate: The Lords amendment is helpful, although it would have been better had it been further amended. We should give credit to their Lordships for attempting to remove a significant injustice fom the Bill. I say "attempting" because I am not sure that that has been achieved.
It is important to see why the appeals procedure needs strengthening. In the preceeding clauses the Insurance Brokers Registration Council is given extensive powers to prevent people who wish to become brokers from registering. In those circumstances it must be right to provide an appeals procedure for the applicant so that cases can be considered properly.
We are all concerned about the corporate State. Here we have a considerable example of it. Considerable powers are being given by the House to a private body. Individuals who might be deprived of their livelihoods should be given the right of appeal and the right to have their cases fully considered.
Originally the Bill contained provision for a simple appeals procedure. That was an improvement on what might have been. The source of many of the provisions is the Insurance Companies Act 1974.

Under the Bill a person may be refused registration because he may be considered unsuitable in character. Under the 1974 Act a company or person in control of a company may be refused registration or debarred if he is not a fit and proper person.
It is easy to understand why the promoters and the Department thought fit to adopt some of the provisions from the Act and translate them into this Bill. But that was a fundamental error and confusion, and it has caused unnecessary difficulties which the other place is seeking to remedy in part by this amendment. It was fundamental, because there is a basic difference between principals—insurance companies—and intermediaries, that is to say, the agents and/or brokers. It would have been better if this power about good character and the like had not been included in the Bill. This is a matter of the greatest importance, considering the appeals procedure.
At least the Bill does provide an appeal to the courts, but that in itself is inadequate. If a person seeking to set up in business is told by the Insurance Brokers Registration Council that it considers his character to be unsuitable, the last thing he wants is to go to court and argue in public about the reasons that caused the council to refuse him registration. I cannot think of a more extraordinary way of setting up business, particularly one that depends on good will, trust and one's reputation, than to have to go to court and show that one is not a bad lot.
The advantage that we have in this connection is that we can look at experience in the work of the Parliamentary Commissioner for Administration. Examples are available to show the sort of reasons that would lead to an appeal.


The 1974 Act at least provides for a reference to the ombudsman where there is a refusal of authorisation or right to be a controller of an insurance company.
In many ways that procedure is an advantage, because at least it is done in private, whereas under the procedure proposed in the Bill the whole thing would become public in court. Thus, an individual refused registration on the ground of being of unsatisfactory character is worse off, because it cannot be done privately.
This is not an academic point. There have been some cases where it has been a consideration. It is relevant to examine how the Department has exercised its power to refuse people registration as controllers of insurance companies because they were not fit and proper persons. It is the exercise of these extreme powers that concerns me. I could—I shall not, because of the lateness of the hour—go through a whole series of cases that have been investigated by the ombudsman—

Mr. Deputy Speaker: Order. I may be wrong, but I understood the hon. Gentleman to say that he was in favour of the amendment.

Mr. Moate: I actually said that I was in favour of the amendment in that it attempted to remedy a defect. I was examining it to see whether it achieved that objective, and in many ways I think that it does not. That is the point I was examining, Mr. Deputy Speaker, but I shall not dwell on it at length. But the present appeals procedure is so inadequate that it might not even be worth accepting.
The Minister knows that the Department has been criticised by the ombudsman for the way in which it has exercised its powers. On one occasion the ombudsman said that the procedure adopted by the Department was unsatisfactory, and the reconsideration of that case was also unsatisfactory.

Mr. Deputy Speaker: Order. We are discussing not what the procedure was but what the Lords amendment suggests it should be.

Mr. Moate: I was endeavouring to illustrate that point.

The Minister of State, Department of prices and Consumer Protection (Mr. John Fraser): Get on with it.

Mr. Moate: The hon. Gentleman says "Get on with it".

Mr. John Fraser: I have been here on three occasions when, in my view, the hon. Gentleman has grossly abused the procedures of the House. He has done that not only on this Bill but on other measures. I believe that to be disgraceful, and a vandalism of parliamentary business.

Mr. Deputy Speaker: Order. I cannot allow anyone to criticise the Chair, and what the hon. Member has just said is an indirect criticism of it. I appreciate the position of hon. Members in their relationship to the Chair, particularly at 3 a.m.

Mr. Moate: Thank you for what you have said, Mr. Deputy Speaker. I hope that one day, no doubt at great personal inconvenience, the hon. Member for Norwood (Mr. Fraser) will fight against legislation that he believes to be bad. I hope that he will use the procedures that are available to him to do his duty to oppose bad legislation. I do intend not to abuse the procedures of the House but to use them to achieve proper examination of these matters. This is the first time that there has been anything like a House even to discus these matters. It is appalling the way in which we proceed with legislation that we seldom debate and vote upon. Only occasionally has there been more than a handful of hon. Members present to discuss this important legislation.
What I was attempting to say was that whenever there have been attempts to adjudicte on the character of individuals engaged in the insurance business it has given rise to endless troubles. There have been complaints about the way in which the Department has exercised its powers, and it Is important that there is an adequate appeals procedure, so that individuals who are unfairly treated, or who think they are unfairly treated, can feel that they have a satisfactory method of appeal.
I still do not think that the provision is right. It would be right if we could


introduce the ombudsman, but we cannot do that. It would be right if someone who lost his appeal to the High Court could go to the Appeal Court, but their Lordships have not seen fit to include that provision, either. The amendment provides an improvement, in that an individual has to be given a statement of the reason why he has been turned down or his registration has been refused. That is important, but it is also important that when he goes to the Council he should have with him his accountant, his solicitor and other advisers. I do not think it right that someone put in this position should have to bear the considerable costs of the hearing. If an individual is put in this position by this legislation, he should not be prejudiced as a result. In that respect, their Lordships' amendment is defective.
Although I feel that what their Lordships have proposed is a slight improvement, I should not like it to be thought that we are satisfied that we have this matter right. I still think that what is proposed is wrong. It is not clear that the amendment has such value that it is worth adding to the Bill.

Question put and agreed to.

Orders of the Day — Clause 10

CODE OF CONDUCT

Lords amendment: No. 7, in page 7, line 32, after "up" insert
and may from time to time revise".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker: With this we may take Lords Amendments Nos. 14, 15 and 17.

Mr. Davis: These are drafting amendments, to make clear that the Council may revise the code of conduct once it has drawn it up, as it is required to do under Clause 10. The. Council should have this power. Unfortunately, the Interpretation Act enables this to be left unsaid in the case of rules and regulations, but it may not apply in the case of a statement under this clause. Any such revision is subject to the approval of the Secretary of State and, hence, of Parliament.

Question put and agreed to.

Lords amendment: No. 8, in page 7, line 33, leave out from "by" to end of line 35 and insert
registered insurance brokers or enrolled bodies corporate, or by registered insurance brokers or enrolled bodies corporate in particular circumstances.

3.0 a.m.

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker: With this we may take Lords Amendments Nos. 9 and 10.

Mr. Davis: These are essentially drafting amendments to make clear that the code of conduct under this clause and the rules under Clauses 11 and 12 may make different provision for different circumstances, for different classes of insurance business, for example, as well as for different descriptions of broker.

Mr. Moate: The Minister might have given us a little more explanation. He said that this was a drafting amendment, but it allows a varation in the terms between one group and another and is rather more than a drafting amendment. The Minister was misusing the phrase. We tend to accept the word of a Minister who says that an amendment is a drafting amendment, and take him on trust. There is therefore an obligation on Ministers to use the term carefully.
The amendments relate to three important clauses. Clause 10 includes the code of conduct, Clause 11 includes the requirements for carrying on a business and Clause 12 includes the rules for the compensation fund and professional indemnity in insurance. These are a series of rules and regulations to be produced after consultation between the Council and the Secretary of State.
There is a case for flexibility in dealing with different-sized firms and classes of business, but I am not sure that I relish the greater flexibility and discretion that is being given to the Council. Rules will be laid down for general brokers who will need a fair amount of professional indemnity insurance and the sole traders, the small life brokers who will need little of such insurance. I am concerned that such powers should be given in this way. This is not a drafting amendment, and unless there is a greater explanation of what it is really about, I


do not think that the House should accept it.

Mr. Clinton Davis: The hon. Gentleman said that the rules and regulations laid down different requirements for different types of insurance broking business. There should be flexibility, and the amendment provides what was, I believe, originally intended and what has now been translated in order to avoid any ambiguity. The hon. Gentleman made the case for the amendment far more eloquently than I could.

Question put and agreed to.

Lords Amendments Nos. 9 and 10 agreed to.

Orders of the Day — Clause 19

PROCEDURE OF DISCIPLINARY COMMITTEE

Lords amendment: No. 11, in page 14, line 37, leave out "such".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.
I assure the hon. Member for Faversham (Mr. Moate) that this is a drafting correction. The word "such" is redundant.

Question put and agreed to.

Lords amendment: No. 12, in page 15, line 31, after "broker" insert "or enrolled body corporate".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker: With this we may take Lords Amendment No. 13.

Mr. Davis: These are two drafting amendments. They are to ensure that rules under Clause 19(4)(e) apply in respect of enrolled bodies corporate as well as individual registered brokers.

Mr. Moate: My point is technical. It seems to me that the drafting may still be defective. Although it refers to enrolled bodies corporate, the clause will subsequently refer simply to a person. However, I do not wish to take up the time of the House and I do not have the page

reference, and so I shall leave it at that. I hope, though, that the Minister will check to see whether this drafting is technically correct.

Question put and agreed to.

Lords Amendments Nos. 13 to 15 agreed to.

Orders of the Day — Clause 27

RULES ETC. MADE BY COUNCIL

Lords amendment: No. 16, in page 19, line 27, leave out "amend" and insert "vary or revoke".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.
This amendment gives my right hon. Friend the Secretary of State for Trade power to vary or revoke rather than amend rules made under specified clauses. That is a clearer expression and will fit in well with the wording of Clause 28, which also refers to varying or revoking orders.

Question put and agreed to.

Lords Amendment No. 17 agreed to.

Orders of the Day — Clause 28

ORDERS

Lords amendment: No. 18, in page 19, line 30, leave out "Any" and insert "The".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker: With this we may take Lords Amendments Nos. 19 and 20.

Mr. Davis: These amendments provide that a commencement order made under Clause 30(3) shall not be subject to parliamentary procedure. Such a procedure for a commencement order would be unusual and unnecessary.

Question put and agreed to.

Lords Amendments Nos. 19 and 20 agreed to.

Orders of the Day — Clause 29

INTERPRETATION

Lords amendment: No. 21, in page 21, line 15, after "an" insert
enactment of the Parliament of Northern Ireland and an".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.
This is a drafting amendment, to ensure that subsection (2) covers enactments of the Northern Ireland Parliament as well as other kinds of enactments.

Question put and agreed to.

Orders of the Day — Schedule

CONSTITUTION, ETC., OF INSURANCE BROKERS REGISTRATION COUNCIL

Lords amendment: No. 22, in page 22, line 8, leave out "and".

Mr. Clinton Davis: I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker: With this we may take Lords Amendment No. 23.

Mr. Davis: These amendments provide for one of my right hon. Friend's nominees to the Council to represent the interests of insurance consumers. For some time the Government have been sympathetic to the idea that the interests of insurance consumers should be represented on the Council, and one of the main purposes of the Bill, contrary to the arguments of its opponents, is to protect the interests of those consumers. I have carefully considered the arguments in favour of consumer representation that were put on Report by my hon. Friend the Member for Peterborough (Mr. Ward), and I have concluded that the Bill should specify that one of my right hon. Friend's nominees should be from among those who seem to him to represent the interests of both existing and potential policyholders.

Mr. Moate: rose—

Mr. Deputy Speaker: I see that the hon. Member has lost 50 per cent, of his "Body corporate".

Mr. Moate: I suppose that in that case, Mr. Deputy Speaker, I have become a "sole trader". That is exactly the position that has prevailed throughout these very long proceedings. I am referring not just to this evening but to months before. Being on one's own, however, does not necessarily mean that one is wrong.
Even though it may be slightly out of order, may I take this opportunity to congratulate my hon. Friend the Member for Harrow, West (Mr. Page) on having persevered against considerable opposition? He has been tested in fire—and that is how Bills should proceed. Equally, hon. Members who disagree should use all the weapons at their disposal.
In many ways the amendment sums up some of the nonsenses in the legislation. It demonstrates some of the misleading concepts that have been put about. It demonstrates the fallacy of the proposition that there should be a consumer represented on the Insurance Brokers Registration Council. Although it is a tribute to the work of the hon. Member for Peterborough (Mr. Ward), it is not good work, because what is proposed is rather nonsensical. It is suggested that we need a consumer representative on a Council, and that by implication the insurance brokers' representatives and the nominees of the Secretary of State are not capable of representing consumer interests.
The insurance industry has successfully defended consumer interests and there is no need for this little bit of window dressing to pretend that this is an act of consumer protection, because it is not that. We have plenty of window dressing of this kind elsewhere, and I do not think we need it in the Bill—if we need the Bill at all. I do not believe it is a Bill designed to help the consumer.
The object of having the consumer representative, presumably, is that he is supposed to represent consumer interests. I say that that interest is well represented by insurance brokers, and the presence of a consumer representative is to my mind a slight on the insurance broking profession. It is not necessary. It is a charade. It is also couched in a rather odd way, because the consumer


representative is described as a person representing
the interests of persons who are or may become policyholders of insurance companies".
Who is not such a person? Is there anyone who is not a policyholder or might not become a policyholder of an insurance company? It is an extraordinarily wide definition and would apply to every other person who is already on the Council.
This is not an act of consumer protection. There is no need for a consumer representative on the Council, and this provision is just typical of the window dressing that we get from the Government, who pretend that they are interested in the consumers. The Bill is not about that; it is designed to strengthen the position of established insurance brokers against the interests of those who in future wish to establish themselves as insurance brokers, and who will now find it that much harder to do because of the restrictions and the controls in the Bill.
I would not support the amendment, but at this late stage that might seem to be a fairly academic position to adopt.

Mr. Michael Ward: The hon. Member for Faversham (Mr. Moate), who has just spoken to the proposal, reminds me of the secretary of the local chamber of commerce who told me some years ago that there was no need for a consumer advice centre in my town because his chamber of commerce always dealt with the complaints in the area. His annual report dealt with nine, and in the first year after the centre was opened we had 27,000 members of the public going through with complaints.
The presence of the consumer representative in the council will bring to bear a much needed special point of view. The present form of words is far superior to the amendment which I moved when the Bill was before the House, and I thank my hon. Friend the Under-Secretary of State very much for honouring the undertaking he gave to consumers at that time.

Mr. Tim Renton: I support what the hon. Member for Peterborough (Mr. Ward) has just said.

Although my hon. Friend the Member for Faversham (Mr. Moate) has said that everyone on the Council will have an interest in representing the consumer, it is right and sensible that there should be on the Council some person who is specifically there with this purpose in mind. I therefore support the amendment, which I think is well drafted.
As my final word, I declare an interest in this matter, having voted during our proceedings, in that I am a member of Lloyd's. Above all, however, I wish to congratulate my hon. Friend the Member for Harrow, West (Mr. Page) on having so successfully piloted this Bill through a long and arduous Committee stage and now through a fairly lengthy piece of business on Lords amendments.

3.15 a.m.

Mr. Clinton Davis: I join with all hon. Members who have congratulated the hon. Member for Harrow, West (Mr. Page) on completing a most arduous task. I hope that I and my officials in the Department have helped him to improve the Bill in certain respects, and certainly in piloting this important measure, as I believe it to be, through the House and into the law of the land.

Question put and agreed to.

Lords Amendment No. 23 agreed to.

Mr. John Page: On a point of order, Mr. Deputy Speaker. I did not wish to say anything until the very final words had been spoken, but I want now to thank you for your courtesy this evening, and to thank my hon. Friends, the Minister, and all hon. Members for their help. Although I still have a beam in my eye, I have much greater difficulty in getting rid of the "Moate" from the other one.
I feel that this is a time of night for prayer. We have, perhaps, gone through the night of doubt and sorrow, but I hope that in future the Bill will provide all things bright and beautiful for brokers great and small.

Mr. Deputy Speaker: Having listened to the hon. Member for Faversham (Mr. Moate) on several occasions, I have decided that I shall not become an insurance broker.

Orders of the Day — PETITIONS

Taunton (Employment)

3.17 a.m.

Mr. Edward du Cann: I beg leave to present two petitions from my constituents, each of which reflects a cause about which I share their keen feelings. The first, which is signed by over 3,000 people, seeks to keep an Army presence in the town of Taunton. There has been a long and happy association with the Army in Taunton. Some years ago we lost our county regiments. We are now to lose the headquarters of the South-Western District, the Junior Leaders' Regiment and various other Army departments.
This is a matter that is much resented. It is bound to have serious economic consequences in the town. Moreover, at a time when it is appropriate to identify the Army more closely with the civilian population, it is, indeed, a mistake.
The petition reads as follows:
To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.
This humble petition of the residents and workers of the county town of Taunton—sheweth
That they believe it vital to Save Civilian Jobs and Keep the Army in Taunton.
Wherefore your Petitioners pray that your honourable House do all in its power to enact legislation to meet your Petitioners' needs;
And your Petitioners, as in duty bound, will ever pray.

To lie upon the Table.

Wiveliscombe (Road Traffic)

Mr. du Cann: The second petition, which is signed by well over 1,000 persons—that is to say, by almost every person living in Wiveliscombe and in the environs—asks that a relief road be provided for that most attractive town. The House is familiar with the development of motor traffic. This is a small place. Its roads and streets are narrow and twisting. Without doubt, the inhabitants suffer greatly from the incursion of holiday and commercial traffic. It is to be very much hoped that this most serious problem can be relieved.
The petition reads as follows:

To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.
This humble petition of the residents and workers of the town of Wiveliscombe sheweth their wish that a relief road should be provided on a route south of the Recreation Ground for the town in order that the character of this ancient place should be preserved and the local inhabitants enabled to go about their business in safety;
Wherefore your Petitioners pray that your honourable House do all in its power to enact legislation to meet your Petitioners' needs.
And your Petitioners, as in duty bound, will ever pray.

To lie upon the Table.

Mr. du Cann: I am grateful for this opportunity to present these two petitions.

Orders of the Day — SPITAL TONGUES SCHOOL, NEWCASTLE UPON TYNE

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Frank R. White.]

3.19 a.m.

Sir William Elliott: I should like to thank the Under-Secretary of State for being here at this very late hour to reply to this debate. I am about to plead for the continuance in being of a school. I have had a certain amount of correspondence with the hon. Lady and with the Secretary of State. In the proceedings to do with the continuance of the school I have had the utmost consideration from the Department, and not only myself but my constituents are grateful for it.
I realise that the decision to close Spital Tongues County Primary School was made at a very late hour in terms of the school year. In fact, the school closed on Friday. It was a late decision, not least because of the consideration given by the Department to its continuance in being. My purpose in raising this proposed closure is to seek a stay of execution for at least one more school year. I do so for a number of reasons.
First and most important is the number of potential pupils for the school. There appears to be a grave discrepancy as between a year ago and the present time with regard to the number of pupils desiring to have places in the school in September this year. In 1976 it was established, I think honestly and quite


sincerely, that by September this year the number of pupils would be down to 10 or 12. Had that been so today, I would not be pleading for the school's continued existence.
However, it is now established, following a most careful survey by the residents' association of the area concerned, that by September this year no fewer than 32 pupils would be available for the school and would be seeking places in it. I stress to the Minister that I have the highest regard for the residents' association. It is a good one. Its officers are responsible people, and its membership is fully representative of this area of Newcastle upon Tyne. The association meets with great regularity, and is strongly supported. Its members have, at my request, been meticulous in their research, and as a result I recently forwarded to the Minister conclusive evidence that pupils could number 32 this September.
I remind the Minister that in her letter to me of 23rd May she stated that the case for and against the closure of the school was "difficult and finely balanced". That was absolutely right. In her letter to me of 27th June, in conveying to me the sad decision about closure, she said:
The inescapable fact is … that within a year or two the number of pupils, already low, will have significantly diminished".
That is relevant to the argument that I wish to present. Local opinion does not agree with this assessment. Local opinion, based on very careful research, is that the number of pupils wishing to attend the school and the number of parents wishing to send their children to the school will not diminish in the next one, two or three years. In fact, the reverse may well be the case.
Let me give the second main reason, closely associated with the first, why the continued life of this fine old school would be more than worth while. I believe that it is highly desirable to maintain in the centre of our major cities established communities. We can do that only if facilities for such communities are provided and/or maintained.
In the post-war years we have seen a great deal of urban reconstruction in our cities, and Newcastle upon Tyne is no exception in this regard. Much of the work of the planners can be commended. I would commend a great deal of the re-

construction in Newcastle upon Tyne, but we face a remarkable modern problem, in that many of our urban established communities have been broken up. We can indeed say that planners have planned out of existence many established communities which we knew in the past.
Many good residential areas of New castle upon Tyne are no more. They are broken up. The houses were razed to the ground. We have new developments, such as office blocks, and the residents of once fine old established communities have been transferred to the outskirts of the city where, in many cases, they have never been happy. The old communities, which were so valuable to my city and other cities like it, are no more.
But in Spital Tongues, where this fine old school stands, we still have an excellent residential area right in the heart of Newcastle. Unfortunatey, the community there has become somewhat unbalanced in terms of age. There is at present a high proportion of senior citizens. If, however, we can retain in being this infant school I am quite certain that an increasing number of young married people will see the enormous benefit and advantage of living in good surroundings—and they are good surroundings in Spital Tongues. It is a most pleasant area. I am sure that young people, married and single, will see a great advantage in living close to the city centre. That would be very good for Spital Tongues and for Newcastle.
There is scope for more housing in the area. There are several plots of land on which new housing could be developed. I very much regret the decision of the city council to develop the Fenham Barrack site as an industrial site rather than for housing. But Spital Tongues is still an area that I feel can retain its own character. It is still an area in which a community can live and exist happily, and from its existence the city can draw great advantage and strength.
Although it is in the centre of the city, this residential area has been known for generations as the Village. It is a village in the heart of a city. I therefore call in aid the Secretary of State's recent circular in which he rightly gave new hope to the continued life of village schools. That circular asked for certain


criteria to be established. I now ask that two of the requirements embodied in that circular be considered with regard to the school in Spital Tongues.
One of the requirements was that before any school was closed the fullest consideration should be given to the social problems connected with the closure. The second was that before a school was closed there must be proven financial saving. I link those two requirements with regard to this proposed closure.
Although the school building in Spital Tongues is more than 100 years old, it is an extremely nice one. It is a sound building. I ventured to invite the Secretary of State, when visiting Newcastle to conduct the first of her great education debates in the regions, to visit the school. She politely told me that she did not have time to do so. I, of course, understood that.
The important point that I wish to bring out is that in this residential area the building is used a great deal after school hours as a social centre for the Village. If it goes, there will be no social centre. This is a matter of which full account should be taken in arriving at a closure decision, and I should like to know from the Minister whether the considerable social use of the school, to say nothing of the income from its social use, was taken fully into account.
I end by emphasising my constituents' distress about the proposed closure of the school. I am aware, as they are, that the two other schools have spare capacity and are not too far away. But they are out of the area of this community, which is an old-established one.
At this time in our history it is very important to retain established communities in city centres, and I repeat that I am sure that if we can retain this school in being in this residential area young married people will be encouraged to live there.
To take away this infants' school from this community will be to take away its heart, and I plead that it be allowed to continue in being for one more year. In that year, it can be proven whether there are a sufficient number of children whose parents wish them to attend it and thereby justify its continuance in being. If it can

continue in being, I am convinced, as the Member for Parliament for the area concerned, that the Spital Tongues Infants' School call go on giving our community the great service that it has given for a very long time.

3.32 a.m.

The Under-Secretary of State for Education and Science (Miss Margaret Jackson): The hon. Member for Newcastle upon Tyne, North (Sir W. Elliott) has raised a question which I suspect we shall see raised with increasing frequency on both sides of the House as the declining birth rate makes its presence felt in schools in every part of the country and in every community.
The case that the hon. Gentleman raised is a somewhat unusual one, in that the school is a small one, with all the characteristics, good and bad, of small schools, but a small school in an urban community rather than a rural one. It was an unusual case and an extremely difficult one in many ways on which to make a judgment; the hon. Gentleman alluded to the comments that we made about the difficulty of making a balanced judgment on the proposal.
I would emphasise one point that the hon. Gentleman made very clear. It is that every care and consideration is given when we look at any proposal for the closure of a school, especially a school of this kind. In whatever kind of community a school is sited, there is no question of the Department rubber-stamping the decisions taken by authorities. Every aspect of a proposal is considered with the greatest care, as is every objection and every comment, and every factual point is investigated with equal care.
The circular on school closures to which the hon. Gentleman referred is not intended to be a signal for wholesale closures. It is intended to give authorities some encouragement to consider the schools that they have in their areas and the best use that can be made of them for the benefit of all the children in their areas, and to help them consider what proposals for the future use of schools might be necessary in the years ahead.
I must emphasise, however, that it is for the local education authorities to make these decisions. It is for the local education authorities to take the initiative


to propose school closures. If an authority decides to c1ose a school it must not only publish public notices of its intention; time must be given for objections to be made. Two months must be allowed, after the publication of a notice, for objectors to make their views known to the Secretary of State. The final decision whether a school should be closed then rests with my right hon. Friend.
The decision to support the proposal of the Newcastle-upon-Tyne Education Authority to close the Spital Tongues School was not taken lightly. As the hon. Gentleman said, it has been a good school, and although its buildings are old they are in good condition. It was popular, too, with parents, but it appeared at the time when the decision was taken that within a year or so the total school population in the area would be down to single figures. At that time it was less clear than the hon. Gentleman suggested that there might be a dispute about the size of the future population, and particularly about the school population in the following year.
In all these proposals one question that comes much into our considerations is the alternative facilities that are available locally. There are a variety of such facilities in the surrounding area. Reference has been made to the role of the school and to the social facilities in the village. Such arguments are always very much in our minds. Although I recognise the arguments advanced by the hon. Gentleman on the value of this school to the community within a large city, nevertheless his constituents are in a rather different position from, let us say, those who live in a small village isolated in a large rural community where no other facilities are available. I recognise the value of the school to the local community, which residents wish to preserve, but nevertheless it is not their only source of social life. In a city such as Newcastle, which offers social facilities, the school is not the only source of community activity.
Furthermore, we are not in this case dealing with an area in which alternative school provision is many miles away over difficult or treacherous country roads. We are dealing with an area in which alternative school provision is not inferior to that of Spital Tongues School. This provision is in easy walking distance of

the nearest school, or a little further afield for those parents who do not wish their children to go simply to the nearest school. Therefore, although I recognise these considerations, they are perhaps less severe than sometimes face people, particularly those who live in rural communities.
I recognise that when the case came before us it would have been possible to agree that Spital Tongues School should carry on for another year, but we had very much in mind the fact that nothing can be more debilitating or depressing than a school which is told to carry on in the knowledge that it is under a suspended sentence of death. Sometimes it is the death knell of the school. In such a case parents are often less willing to send their children to such a school. Therefore, I am not sure that suspension of the decision for a year would produce the result that the hon. Gentleman and many of the local community expect.
The hon. Gentleman commented that the area, which may be eligible for redevelopment—the Fenham Barracks area—is not to be developed for housing, but I understand from the city planning department that although the area as a whole is earmarked for the preparation of a local plan it does not anticipate that it will lead to a substantial increase in the amount of family housing. In future one does not see any possibility of a substantial growth in the local community, with corresponding need for provision for extra children who will want school places.
However, the argument that is always paramount with us in such cases is what we consider to be the balance of educational advantage or disadvantage for the children involved. We always seek to make a judgment on the basis of whether the children, on balance, obtain more educational advantage from the perhaps more individual attention in a small school or—the other side of the coin—from being with a larger peer group, mixing with children from a bigger circle, being with more children of their own age, in a way that outweighs the perhaps slightly better pupil-teacher ratio. We approve a closure only when we have become convinced—sometimes reluctantly, and sometimes with difficulty, as in this case—that that is where the


balance of advantage lies. It is very much the interests of the children that we have in mind at such a time.
My final point is one of substance, but I have left it to the end because I did not wish the hon. Gentleman to feel that it was the only matter that concerned us, and that we did not recognise the arguments of his constituents. It is that under the law as it stands, once the approval of a proposal of this kind has been given under Section 13 of the 1944 Act it is not open to my Department to withdraw or vary that approval.
The hon. Gentleman sought from me tonight a possible stay of execution, as he put it, for a year. It is not within my power to give it. It is now for the local authority to decide on what date it will close the school. After the case has been most carefully considered and all the procedures have been gone through, the authority's proposal has been given the Department's approval. It is now within the authority's power to decide when to carry out that closure. It is not now within my power to withdraw

that approval, or to vary its terms. It is within the local education authority's power to make the final decision that the hon. Gentleman seeks.
In fairness to the authority, I must tell the hon. Gentleman that if it were within my power I think that, reluctantly, I would perhaps not grant his plea. If I had felt that it would help the school to keep it open for another year, the decision would not have been taken in the first place. It is now for the authority to make the decision, and I am sure that it has the best interests of the local community and the children in it at heart, just as we have.
I ask the hon. Gentleman and his constituents to recognise that good will and to make good use of it, even if the school cannot be kept open, to see that the children settle happily and fruitfully into a different school and that the community suffers as little as may be by the closure.

Question put and agreed to.

Adjourned accordingly at sixteen minutes to Four o'clock a.m.